Dr. Marc Faber Comments On Barron's Roundtable

Blogged yesterday: To Buy Or To Sell Gold Now?

Now on Barron's Roundtable, buried in the middle, there are some interesting comments from Dr. Marc Faber.

• Faber: One day the price of gold will be higher than the Dow Jones. The CRB, a broad index of commodities, fell for 20 years in nominal terms, from 1980 to 1999. It is now up 12% and is still inexpensive. The Dow and the S&P are up substantially from the 1980s or early 1990s. Everyone thinks fiscal and monetary measures will work to fix the financial system. I don't. They will be disastrous and fuel inflation. But the supply of oil, gas and copper is relatively limited compared to paper money you can print.
  
  Recently I bought some U.S. stocks for the first time in a long time. If you buy Intel , Cisco , Yahoo! , Oracle and Microsoft , you will do much better in the next 10 years than you would with Treasuries. These stocks will double and even triple -- before going to zero.

Source: http://online.barrons.com/article/SB123276613972012603.html?page=5

Roach: Asia Decouple? Don't Kid Yourself!

Read the following on Dow Jones Newswire.

• DAVOS, Switzerland (Dow Jones)--The once-popular assumption that Asian economies can "decouple" themselves from any slowdown in their Western counterparts has proven "completely wrong" amid the current financial crisis, said Stephen Roach, chairman of Asia at Morgan Stanley, on Friday.
  
  "This time a year ago at this place there was consensus that we were embracing the so-called Asian Century and no matter what happens in the developed economies, Asia would decouple from it," Roach said at the World Economic Forum.
  
  "There's no decoupling in a globalized world. Don't kid yourself," he said, adding that the global slowdown has shown that "no region is more externally dependent than Asia."
  
  While China and India are suffering from a sharp weakening in economic growth, Japan is in a "horrific" recession, Roach said.
  
  The crisis is a "wake-up call" for those subscribing to illusory optimism and poses a big challenge for Asia to shift its growth model to a less export-dependent one, he said.
  
  "While the world trade boom has already gone bust, it won't be easy for Asia to boost private consumption," Roach said.
  
  At the same time, Roach said free trade remains the way forward for global economic growth and the long-stalled Doha Round of trade talks needs to be revived as soon as possible.
  
  He added that there tends to be "cyclical economic nationalism" during an economic crisis and political leaders around the world should prevent such harmful sentiments from getting out of control.
  

To Buy Or To Sell Gold Now?

FinancialSense has a new market commentator, Danielle Park, and on her market wrap editorial, she writes Feelings aside: Is gold more likely a buy or a sell here?

• 
  
  
  Since 2001 and for 7 long years as the US dollar fell, the price of gold had an exceptionally good run of more than 300%. But as the US dollar broke out last January gold broke down. Since then as the great reckoning broke loose in the global economy, we have seen gold make lower highs, and lower lows.
  
  I don’t profess to know the future. But with all the carnage that has hit the world this past year, shouldn’t gold have made a fresh high by now? If the economic world does come to an end any time soon, then gold may well break higher still. But the alternate scenario should also be considered. Maybe-- just maybe the worst of this market crisis is now passing by.
  
  Yes the US has a lot of problems. But the rest of the world is in tatters too, and relatively speaking most are worse off. Incredible to suggest I know, but what if the US stock market manages the now largely unexpected and begins to buck up?
  




• The most bullish argument I hear for gold is that retail investors, now sacred out-of-their-wits by the global downturn, mistrusting governments and paper money, will continue to feverishly snatch up gold bars, coins, wafers and gold ETF's. Maybe they will; but for how much longer? They can’t eat or drink it. They can’t use it for shelter; it won’t pay them an income. Even gold-obsessed East Indians generally stop buying gold to collect when its price passes $750 an ounce. East Indian demand collapsed last year, with India’s gold imports plunging 81% in December.
  
  Maybe with the on-going implosion of hedge funds that were recklessly speculating in this and other commodities over the past 7 years, dumb money is gone for a while, and gold prices will continue to fall. Maybe the world won’t end and the US dollar won’t lose its benchmark status- at least just yet. Maybe the beleaguered stock market will start to recover this year and gold will continue to contract from its multi-year high. Based on history at least, it would seem that gold’s inevitable reversion to the mean is now overdue.
  
  
  

Do read the rest of her views here: Feelings aside: Is gold more likely a buy or a sell here?

Donald Keough On Warren Buffett

Great short video on Donald Keough on why he didn't invest in Warren's partnership.

Them Insane And Mad CEO Bonuses Just Has To End!

Posted on NewYorkTimes: What Red Ink? Wall Street Paid Hefty Bonuses

• By BEN WHITE
  Published: January 28, 2009
  By almost any measure, 2008 was a complete disaster for Wall Street — except, that is, when the bonuses arrived
  
  Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year.
  
  That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.
  
  While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.
  
  Some bankers took home millions last year even as their employers lost billions.
  
  The comptroller’s estimate, a closely watched guidepost of the annual December-January bonus season, is based largely on personal income tax collections. It excludes stock option awards that could push the figures even higher.
  
  The state comptroller, Thomas P. DiNapoli, said it was unclear if banks had used taxpayer money for the bonuses, a possibility that strikes corporate governance experts, and indeed many ordinary Americans, as outrageous. He urged the Obama administration to examine the issue closely.
  
  “The issue of transparency is a significant one, and there needs to be an accounting about whether there was any taxpayer money used to pay bonuses or to pay for corporate jets or dividends or anything else,” Mr. DiNapoli said in an interview.
  
  Granted, New York’s bankers and brokers are far poorer than they were in 2006, when record deals, and the record profits they generated, ushered in an era of Wall Street hyperwealth. All told, bonuses fell 44 percent last year, from $32.9 billion in 2007, the largest decline in dollar terms on record.
  
  But the size of that downturn partly reflected the lofty heights to which bonuses had soared during the bull market. At many banks, those payouts were based on profits that turned out to be ephemeral. Throughout the financial industry, years of earnings have vanished in the flames of the credit crisis.
  
  According to Mr. DiNapoli, the brokerage units of New York financial companies lost more than $35 billion in 2008, triple their losses in 2007. The pain is unlikely to end there, and Wall Street is betting that the Obama administration will move swiftly to buy some of banks’ troubled assets to encourage reluctant banks to make loans.
  
  Many corporate governance experts, investors and lawmakers question why financial companies that have accepted taxpayer money paid any bonuses at all. Financial industry executives argue that they need to pay their best workers well in order to keep them, but with many banks cutting jobs, job options are dwindling, even for stars.
  
  Lucian A. Bebchuk, a professor at Harvard Law School and expert on executive compensation, called the 2008 bonus figure “disconcerting.” Bonuses, he said, are meant to reward good performance and retain employees. But Wall Street disbursed billions despite staggering losses and a shrinking job market.
  
  “This was neither the sixth-best year in terms of aggregate profits, nor was it the sixth-most-difficult year in terms of retaining employees,” Professor Bebchuk said.
  
  Echoing Mr. DiNapoli, Professor Bebchuk said he was concerned that banks might be using taxpayer money to subsidize bonuses or dividends to stockholders. “What the government has been trying to do is shore up capital, and any diversion of capital out of banks, whether in the form of dividends or large payments to employees, really undermines what we are trying to do,” he said.
  
  Jesse M. Brill, a lawyer and expert on executive compensation, said government bailout programs like the Troubled Asset Relief Program, or TARP, should be made more transparent.
  
  “We are all flying in the dark,” Mr. Brill said. “Companies can simply say they are trying to do their best to comply with compensation limits without providing any of the details that the public is entitled to.”
  
  Bonuses paid by one troubled Wall Street firm, Merrill Lynch, have come under particular scrutiny during the last week.
  
  Andrew M. Cuomo, the New York attorney general, has issued subpoenas to John A. Thain, Merrill’s former chief executive, and to an executive at Bank of America, which recently acquired Merrill, asking for information about Merrill’s decision to pay $4 billion to $5 billion in bonuses despite new, gaping losses that forced Bank of America to seek a second financial lifeline from Washington.
  
  A Treasury department official said that in the coming weeks, the department would take action to further ensure taxpayer money is not used to pay bonuses.
  
  Even though Wall Street spent billions on bonuses, New York firms squeezed rank-and-file executives harder than many companies in other fields. Outside the financial industry, many corporate executives received fatter bonuses in 2008, even as the economy lost 2.6 million jobs. According to data from Equilar, a compensation research firm, the average performance-based bonuses for top executives, other than the chief executive, at 132 companies with revenues of more than $1 billion increased by 14 percent, to $265,594, in the 2008 fiscal year.
  
  For New York State and New York City, however, the leaner times on Wall Street will hurt, Mr. DiNapoli said.
  
  Mr. DiNapoli said the average Wall Street bonus declined 36.7 percent, to $112,000. That is smaller than the overall 44 percent decline because the money was spread among a smaller pool following thousands of job losses.
  
  The comptroller said the reduction in bonuses would cost New York State nearly $1 billion in income tax revenue and cost New York City $275 million.
  

And on cnbc: Obama: Wall Street Bonuses 'Outrageous'

• Obama said, "That is the height of irresponsibility. It is shameful. It's outrageous."
  
  The president said he and new Treasury Secretary Timothy Geithner will have direct conversations with corporate leaders to make the point.
  
  Obama said there is a time for corporate leaders to make profits and get paid bonuses but now is "not that time." "You're never going to get any support for the continued tough decisions we have to make if this kind of behavior continues.
  

I am simply over the moon that the insane CEO bonus is now an issue.

It was total madness that CEOs are paid such amount!

The CEO bonus bubble must be pop and it has to end NOW!!!

Blogged last year: CEOs Booted With Insane Bonus And Severance Packages!

Goldman Sachs Says Bank Bailouts Could Cost 4 Trillion!

Posted on cnbc. Bank Bailout Could Cost Up to $4 Trillion

• The cost of restoring confidence in U.S. financial firms may reach $4 trillion if President Barack Obama moves ahead with a "bad bank" that buys up souring assets.
  
  The figure far exceeds even the most pessimistic estimates of how great the loan losses might be because there is so much uncertainty about default rates, which means the government may need to take on a bigger chunk of bank debt to ease concerns.
  
  Goldman Sachs economists said ideally the public sector would step in to remove the hardest-to-value assets, which would alleviate nagging worries about future losses and hopefully help get lending going again.
  
  "Unfortunately, with an unprecedented meltdown in mortgage credit and a deep recession in the broader economy, there is a great deal of uncertainty about the value of almost every asset," they wrote in a note to clients.
  
  Obama and his economic advisers are expected to lay out their policy plan as early as next week. One idea that seems to be gaining traction is setting up an entity to buy troubled assets and hold them until they mature or resell them.
  
  The hope is that once banks get rid of those bad loans, they can attract private investors, get back to the business of lending, and help revive the economy.
  
  Vice President Joe Biden said Thursday that Treasury Secretary Timothy Geithner was considering all options to restart normal lending, but that no decisions had been made.
  
  Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included.
  
  New York Sen. Charles Schumer has said that a number of experts thought that up to $4 trillion may be needed to buy the bad assets, an estimate that a Senate aide said was based on informal conversations with people in the industry.
  
  The Wall Street Journal said government officials had discussed spending $1 trillion to $2 trillion to help restore banks to health, citing people familiar with the matter.
  
  At $4 trillion, that would be the equivalent of nearly 1/3 of U.S. gross domestic product. If the government had to fund that amount by issuing additional debt, it would intensify investor concerns about massive supply scaring off demand.
  
  Depending on how the plan is structured, the government may not have to put up the full amount, and since the majority of people are still paying their mortgages and credit card bills, there is a reasonable expectation that taxpayers would recoup a substantial portion of the cost.
  
  However, the potential loss is huge, and if more public money is needed to boost capital even after the bad assets are removed, the total would undoubtedly climb.
  
  The International Monetary Fund said Wednesday that worldwide losses on U.S.-originated loans may hit $2.2 trillion, well above its October estimate of $1.4 trillion. It said banks in the United States, Europe and elsewhere probably needed to raise $500 billion to cover losses coming this year and next.
  
  Cutting Out a Zero
  
  For U.S. lawmakers who are already taking grief from voters over a $700 billion bailout approved last fall, passing another big spending measure carries significant political risk.
  
  At the same time, Obama's team wants to take action that is bold enough to fix the problem once and for all, hoping to avoid the sort of ad hoc approach that has been criticized for adding to investor uncertainty.
  
  Time is not on Obama's side. The more the economy weakens, the longer the list of potentially dodgy debt grows. That is why he faces enormous pressure from Wall Street to act fast.
  
  The government would not necessarily have to spend the full $4 trillion to buy the assets. If it follows the model used in a Federal Reserve program to support consumer and small business loans, the government could potentially put up just 10 percent of the total.
  
  Spending $400 billion would certainly be more palatable to Congress than $4 trillion. It may not even require that much additional funding. Economists estimate that perhaps $250 billion of what remains in the $700 billion bailout fund could be devoted to the "bad bank."
  
  That money could buy bad assets, which would then be repackaged and sold to investors to raise more money which could then by recycled to buy more assets.
  
  Stephen Stanley, chief economist at RBS Greenwich Capital, said although that sounds similar to the sort of financial engineering that spawned the credit crisis in the first place, it would be structured so that the central bank or whichever agency oversees the program is last in line to take losses.
  
  "If things turn out so bad that the Fed ends up on the hook for $1 trillion in losses, then the financial sector, the economy, and everything else will be dead anyway," he said.
  

Citi Broke But Still Insist On A $50 Million Jet

Absolutely ludicrous!

• NEW YORK/WASHINGTON: Citigroup Inc, which has received US$45 billion (US$1 = RM3.62) of capital from the US government, is going through with plans to buy a US$50 million jet, but a US senator called the deal absurd and wants the Obama administration to block it.
  
  The bank signed a contract several years ago to buy a Dassault Falcon 7X and plans to accept delivery later this year, according to a person familiar with the matter.
  
  Citigroup said in a statement that refusing delivery now would result in millions of dollars of penalties. The bank also said it is selling existing aircraft, the proceeds of which will more than pay for the new plane.
  
  The New York Post, which was first to report the bank was still buying the new plane, said earlier on Monday that Citigroup was selling two jets estimated to be worth US$27 million each.
  
  In Washington, the White House frowned on the purchase with a spokesman saying President Barack Obama does not believe "that's the best use of money" by companies that are receiving taxpayer assistance.
  
  Citigroup said it is not using funds it received from the government's Troubled Asset Relief Programme to pay for the jet and it will continue to comply with all TARP requirements.
  
  The new jet will be more fuel-efficient and will lower Citigroup's operating expenses, the bank said.
  
  Seator Carl Levin, a Michigan Democrat, wants the Treasury Department to block the sale.
  "To permit Citigroup to purchase a plush plane - foreign-built no less - while domestic auto companies are being required to sell off their jets is a ridiculous double standard," Levin said. - Reuters

Source: here

Retailers Forecast 2009: It's Gonna Be Even Scarier!!

On MSNBC: Forecasters see historic drop in retail sales

• NEW YORK - The nation’s retailers had a rough 2008, but this year will likely be even scarier, according to a sales forecast released Tuesday from the world’s largest retail trade organization.
  
  Retailers are expected to record a 0.5 percent drop in revenue in 2009, the first annual decline in three decades and perhaps much longer, according to a National Retail Federation forecast released Tuesday.
  
  That’s well below the modest 1.4 percent gain they recorded for 2008.
  
  Massive layoffs, slumping home prices and tight credit are keeping shoppers tightfisted.
  
  The NRF estimated that retail sales for the first half of 2009 will fall 2.5 percent. Then, they’ll show a 1.1 percent decline in the third quarter and rebound to a 3.6 percent increase in the fourth quarter, aided by an anticipated government economic stimulus.
  
  Another factor that should help sales figures for late 2009 is that sales were so dismal in the fourth quarter of 2008 — declining 1.7 percent, according to Rosalind Wells, NRF’s chief economist.
  
  For November and December combined, sales fell 2.8 percent, well below the association’s forecast of a 2.2 percent gain.
  
  “Most of the consumer behavior we saw in 2008 will continue well into this year,” said Wells
  
  She said she’s never seen an annual decline in the 30-plus years she has tracked retail sales. She started with NRF in 1995 but had previously worked as J.C. Penney’s chief economist from 1978 to 1988.
  
  NRF’s retail sales figures exclude business from automobile sales, gas stations and restaurants.
  
  One of the key challenges for the retail industry is the massive layoffs across all sectors that appear to be accelerating, Wells said.
  
  “Employment is one of the foremost criteria we look for, which in turns means income,” Wells said. “Without a good employment trend, it is very hard to have confident shoppers to go out and spend. Right now, employment numbers have been terrible, and more layoffs are to come.”
  
  Several big names in corporate America announced layoffs Monday.
  
  Pharmaceutical giant Pfizer Inc., which is buying rival drug maker Wyeth in a $68 billion deal, and Sprint Nextel Corp., the country’s third-largest wireless provider, each plan to slash 8,000 jobs. Home Depot Inc., the biggest home improvement retailer in the U.S., is shedding 7,000 jobs, and General Motors Corp. said it will cut 2,000 jobs at plants in Michigan and Ohio due to weak sales.
  
  Caterpillar Inc., the world’s largest maker of mining and construction equipment, announced 5,000 new layoffs on top of several earlier actions.
  
  Wells said she felt somewhat encouraged by data released Monday by the National Association of Realtors showing an unexpected increase in sales of existing homes helped by booming sales of bargain-basement foreclosures in California and Florida. But she said housing must improve substantially before the economy can start to pick up.
  
  The NRF predictions are being released on the same day the New York-based private research group The Conference Board is slated to announce its January index on consumer sentiment, which economists expect will remain near all-time lows.
  
  The reading is expected to be up slightly, at 39, from 38 in December, which marked the lowest point since at least 1967, when the index began.
  
  In January a year ago, consumer confidence was at 87.3.
  
  The index is compiled from a survey of 5,000 U.S. households and will be released at 10 a.m. EST.
  
  

Warren's Unhappy New Year

Posted Barron's: Warren's Unhappy New Year

Amazing how quick these critics are!

--------------

Warren Buffett's affinity for a group of financial stocks probably is dragging down Berkshire Hathaway's vaunted equity portfolio this year.

EVEN GREAT INVESTORS MAKE MISTAKES. Warren Buffett's affinity for a group of financial stocks, including American Express (ticker: AXP), Wells Fargo (WFC) and U.S. Bancorp (USB), is likely hurting his equity returns in 2009.

Buffett's Berkshire Hathaway has sizable holdings in that trio, and the sizable declines in their share prices this year are dragging down Berkshire's (BRKA) vaunted equity portfolio, which totaled $76 billion at the end of the third quarter, the latest reporting period.

We estimate Berkshire's equity portfolio could have dropped 14% in 2009 through Thursday, against an 8% decline in the S&P 500.

Our estimate is based on the change in value of Berkshire's 16 largest equity holdings. These holdings historically have accounted for over 85% of Berkshire's portfolio. The tough 2009 follows a good showing in 2008, when Berkshire's equity positions declined -- by our estimate -- about 25%, 13 percentage points better than the S&P 500. Our calculations for 2009 are based on Berkshire's reported holdings on Sept. 30. There admittedly may have been some changes since.

Wells Fargo is Berkshire's biggest loser in 2009, as shares of the California bank were down nearly 50% through Thursday to about 16. Buffett couldn't be reached for comment, but his view on the financial sector has been to buy quality. At Berkshire's annual meeting last May, Buffett said: "We like the culture at Wells Fargo, M&T and U.S. Bancorp. In all three cases, I understand the DNA of management. That doesn't mean they won't have problems," according to a meeting attendee. (Berkshire owns a stake in Buffalo's M&T Bank [MTB].)

Our guess is that if any of these companies needs an equity investor, Berkshire stands ready to help. And the stocks are so volatile they could turn higher at any time.

The paper losses on Berkshire's equity portfolio this year, plus losses on its short position in some $37 billion of equity puts, have depressed Berkshire class A shares, which finished Friday at $86,250, down 10% in 2009. Barron's wrote bearishly on Berkshire in late 2007 when the stock traded at $144,000 and we turned bullish in late November with the shares just above current levels.

When it reported third-quarter results in November, Berkshire said shareholder equity fell by $9 billion, or nearly $6,000 a share, through the end of October given weak markets. We estimate book value probably ended 2008 around $70,000 a share. Current book value may have dropped close to $67,000 a share. If we're right, Berkshire trades for a still-reasonable 1.3 times book value and 14 times projected 2009 earnings of around $6,000 a share.

After a flurry of high-profile investments in early October, including $5 billion in Goldman Sachs preferred carrying a 10% dividend, and a similar $3 billion deal involving General Electric , Berkshire hasn't unveiled any big new investments. Why? Our guess is that its once-enormous cash hoard has been depleted.

Berkshire's insurance cash holdings, which stood at $27 billion on Sept. 30, likely fell to $13 billion after the Goldman (GS) and GE (GE) deals, as well as a $6.5 billion investment in junk bonds and preferred stock of Wrigley, which was bought by Mars. Berkshire also is on the hook for a $3 billion convertible preferred-stock investment in Dow Chemical (DOW) if it completes its purchase of Rohm & Haas (ROH). Some investors say Berkshire likes to keep $10 billion of cash to deal with unexpected insurance claims arising from an earthquake or hurricane. This wouldn't leave Berkshire much cash for a big investment unless it sells something or takes on debt.

Our guess is that if Berkshire did make more fourth-quarter investments, they were focused on the battered junk-bond market. Berkshire will disclose more on investments in its annual report, due around March 1.

Now There Is Profit!

Blogged last Wednesday, 21st January 2009: Prince Alwaleed's Kingdom Holding Suffer Massive Losses In Q4

Let me reproduce what was posted then.

• Saudi prince's firm loses $8.3B in 4Q
  By ADAM SCHRECK
  
  DUBAI, United Arab Emirates
  
  The Saudi investment company that bet big on now-ailing Citigroup and other major global companies said Tuesday it lost more than $8 billion in the last three months of 2008.
  
  Prince Alwaleed bin Talal's Kingdom Holding Co. attributed the drop to losses stemming from the company's investments in capital markets, according to a statement posted on the Saudi Tadawul exchange's Web site.
  
  Kingdom Holding said it lost 30.98 billion riyals ($8.26 billion) in the fourth quarter of 2008. That compares with a gain of 255.6 million riyals ($68.2 million) in the same period a year earlier.
  
  "It's significant," said John Sfakianakis, chief economist at SABB, the HSBC Holdings PLC affiliate formerly known as Saudi British Bank. "I don't think that we have seen such a loss in the recent corporate history of Saudi Arabia."
  
  Kingdom Holding was established in 1980 and initially focused on construction projects before evolving into one of the largest investment companies in the United States and elsewhere.
  
  The firm invests in a number of well-known companies, such as Apple Inc. and News Corp.
  
  A nephew of Saudi Arabia's king, Alwaleed, 52, is ranked as the world's 13th-richest person by Forbes magazine. He has recently taken a big hit in his holdings, however.
  
  Dubai-based magazine Arabian Business reported last month that Alwaleed's net worth fell to $17.08 billion from $21 billion in 2007. The magazine, at the time, said he remained the world's richest Arab.
  
  In November, Alwaleed announced he would raise his stake in Citigroup Inc. to 5 percent, from less than 4 percent -- a move that came as the banking giant was facing a possible collapse.
  
  Citigroup last week posted a loss of $8.29 billion, its fifth straight quarterly deficit, and laid out plans to reorganize itself. The company's shares have lost more than 80 percent of their value in the past year.
  
  Sfakianakis said that although Kingdom Holding's loss was substantial, it doesn't come as a complete surprise given the declines in markets around the world.
  
  "I wouldn't downplay it, but at the same time ... you can fairly say that the top 50 businessmen throughout the world have seen similar, significant losses taking place throughout 2008," he said.
  
  Kingdom Holding said its 2008 losses totaled 29.91 billion riyals ($7.98 billion). That compares with a profit of 1.21 billion ($322.7 million) for the prior year.

Three days later, on 24th January 2008, Kingdom Holdings posted the following.

• RIYADH (Reuters) - Kingdom Holding Co (4280.SE), owned by Saudi billionaire Prince Alwaleed bin Talal, said on Saturday that it had revised its fourth-quarter earnings to show a small overall profit after initially reporting a net loss close to $8.3 billion.
  
  The revision followed the completion of an examination by Kingdom Holding of its preliminary financial earnings for 2008 and a "re-categorization of some items of its income statement," according to a statement posted on Saudi bourse website.
  
  Based on this "re-categorization," the company said, Kingdom Holding showed an "overall" profit of 276 million riyals ($73.6 million).
  
  The company reported on January 20 a Q4 net loss of 30.97 billion riyals ($8.26 billion) after a dive in the value of its assets, which include a substantial stake in Citigroup (NYSE:C - News).
  
  Kingdom's spokeswoman Heba Fatani declined to immediately comment on the official stock market disclosure. ( source: here )

Alice Shroeder Talks At University Of Virginia

Here is an excellent video of Alice Schroeder speech at a University of Virginia value investing conference. ( Skip the long introductory - fast forward to 06.00)

Nice Work John Thain!

It was just on January 15th 2009 that John Thain made the following remark on a New York Times article.

• "We have been consistently cleaning up the balance sheet, repairing the damage that was done over the last few years" ( source: Bank of America to Receive Additional $20 Billion )

Cleaning up the balance sheet?

Repairing the damage that was done over the last few years?

Guess what good old Charlie has literrally found under John Thain's rug! (yeah, pun intended. What do you expect when you read his $87,000 rug!!! )

In a Daily Beast/CNBC exclusive, Charlie Gasparino reveals how Merrill Lynch’s CEO spent over $1 million and hired the Obamas' decorator to redecorate his office last year—even as the firm faced a financial crisis.

John Thain’s $87,000 Rug by Charlie Gasparino

Below, The Daily Beast presents Thain’s top 16 outrages.

1) $2,700 for six wall sconces.
2) $5,000 for a mirror in his private dining room.
3) $11,000 for fabric for a "Roman Shade.”
4) $13,000 for a chandelier in the private dining room.
5) $15,000 for a sofa.
6) $16,000 for a "custom coffee table.”
7) $18,000 for a “George IV Desk.”
8) $25,000 for a "mahogany pedestal table.”
9) $28,000 for four pairs of curtains.
10) $35,000 for something called a "commode on legs.”
11) $37,000 for six chairs in his private dining room.
12) $68,000 for a "19th Century Credenza" in his office.
13) $87,000 for a pair of guest chairs.
14) $87,000 for an area rug in Thain's conference room and another area rug for $44,000.
15) $230,000 to his driver for one year’s work.
16) $800,000 to hire celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.

And that's not all!!

On the Naked Capitalism, Yvess Smith wrote the following: Merrill Execs Pay Selves Bonuses Ahead of Schedule (and Before BofA Closing)

• Playing fast and loose seems to be the theme of the evening. First we have the credulity-stretching China fourth quarter GDP release, and now we have the eleventh hour stealing of the silver by Merrill's top executives as one of the firm's final acts.
  
  Let us remember the fact set: Merrill managed to get Bank of America to agree to buy it in September, elbowing aside Lehman. The deal is subject to shareholder approval, however. BofA, realizing it has acquired a garbage barge, threatens to scuttle the deal unless Uncle Sam lends a helping hand. Negotiations proceed behind closed doors (and neither Merrill nor BofA shareholders are told prior to the shareholder vote that BofA has agreed to do the deal subject to some form of government support).
  
  Now we learn that after it was evident that the US taxpayer was going to subsidize the Merrill acquisition, the Merrill compensation committee accelerated bonus payments by a month to make sure they were paid out before the BofA deal closed.
  
  Efforts are being made to minimize the amount involved (it is claimed to be only $3-$4 billion, but the fact is amounts were reserved in prior quarters that are excessive in light of full year performance. So the fact that some of the amounts were allowed for in previous quarters is misleading).
  
  Were Merrill bankrupt, the bonus payments could be deemed fraudulent conveyance and clawed back. But we don't do either financial firm bankruptcies or clawbacks in this country.
  
  From the Financial Times:
  
  Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its sale to Bank of America.
  
  The timing is notable because the money was paid as Merrill’s losses were mounting and Ken Lewis, BofA’s chief executive, was seeking additional funds from the government’s troubled asset recovery programme to help close the deal.
  
  Merrill and BofA shareholders voted to approve the takeover on December 5. Three days later, Merrill’s compensation committee approved the bonuses, which were paid on December 29. In past years, Merrill had paid bonuses later – usually late January or early February, according to company officials.
  
  Within days of the compensation committee meeting, BofA officials said they became aware that Merrill’s fourth-quarter losses would be greater than expected and began talks with the US Treasury on securing additional Tarp money...
  
  Despite the magnitude of the losses, Merrill had set aside $15bn for 2008 compensation, a sum that was only 6 per cent lower than the total in 2007, when the investment bank’s losses were smaller.
  
  The bulk of $15bn in compensation was paid out as salary and benefits throughout the course of the year. A person familiar with the matter estimated that about $3bn to $4bn was paid out in bonuses in December.
  
  Nancy Bush, an analyst with NAB Research, described the size of the 2008 Merrill bonus payments as “ridiculous”
  

And yes, John Thain has been sacked!

Nice work John Thain!

Transcript Of Warren Buffett's Interview On PBS

Transcript of Warren Buffett's interview on PBS

• WARREN BUFFETT TO PBS: CREDIT CRUNCH "GETTING A LITTLE BETTER" BUT BUSINESS IS GETTING WORSE

  SUSIE GHARIB, ANCHOR, NIGHTLY BUSINESS REPORT: Are we overly optimistic about what President Obama can do?

  WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: Well, I think if you think that he can turn things around in a month or three months or six months and there’s going to be some magical transformation since he took office on the 20^th, that can’t happen and wouldn’t happen. So you don’t want to get into Superman-type expectations. On the other hand, I don’t think there’s anybody better than you could have had, have in the presidency than Barack Obama at this time. He understands economics. He’s a very smart guy. He’s a cool rational-type thinker. He will work with the right kind of people. So you’ve got the right person in the operating room, but it doesn’t mean the patient is going to leave the hospital tomorrow.

  GHARIB: Mr. Buffett, I know that you’re close to President Obama. What are you advising him?

  BUFFETT: Well, I’m not advising him really, but if I were I wouldn’t be able to talk about it. I am available any time. But he’s got all kinds of talent right back there with him in Washington. Plus he’s a talent himself so if I never contributed anything for him, fine.

  GHARIB: But I know that during the election that you were one of his economic advisors, what were you telling him?

  BUFFETT: I was telling him business was going to be awful during the election, period, and that we were coming up in November to a terrible economic scene which would be even worse probably when he got inaugurated. So far I’ve been either lucky or right on that. But he’s got the right ideas. He believes in the same things I believe in. America’s best days are ahead and that we’ve got a great economic machine, it's sputtering now. And he believes there could be a more equitable job done in distributing the rewards of this great machine. But he doesn’t need my advice on anything.

  GHARIB: How often do you talk to him?

  BUFFETT: Not often, not often, no, no, and it will be less often now that he’s in the office. He’s got a lot of talent around him.

  GHARIB: What’s the most important thing you think he needs to fix?

  BUFFETT: Well the most important thing to fix right now is the economy. We have a business slowdown, particularly after October 1st, it was sort of on a glide path downward up til roughly October 1st, and then it went into a real nosedive. In fact, in September I said we were in an economic Pearl Harbor and I’ve never used that phrase before. So he really has a tough economic situation and that’s his number one job. Now his number one job always is to keep America safe. That goes without saying.

  GHARIB: But when you look at the economy, what do you think is the most important thing he needs to fix in the economy?

  BUFFETT: Well, we’ve had to get the credit system partially fixed in order for the economy to have a chance of starting to turn around. But there’s no magic bullet on this. They’re going to throw everything from the government they can in. As I said, the Treasury is going all in, the Fed, and they have to, and that isn’t necessarily going to produce anything dramatic in the short-term at all. Over time, the American economy is going to work fine.

  GHARIB: There is considerable debate, as you know, about whether President Obama is taking the right steps so we don’t get in this kind of economic mess again. Where do you stand on that debate?

  BUFFETT: Well, I don’t think the worry right now should be about the next one. The worry should be about the present one. Let’s get this fire out and then we’ll figure out fire prevention for the future. But really, the important thing to do now is to figure out how we get the American economy restarted and that’s not going to be easy and it's not going to be soon, but it's going to get done.

  GHARIB: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?

  BUFFETT: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective, in the short-run, we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.

  GHARIB: But are we creating new problems?

  BUFFETT: Always.

  GHARIB: How worried are you about these multi-trillion dollar deficits?

  BUFFETT: You can’t just do one thing in economics. Anytime somebody says 'I'm going to do this', you have to say, 'And then what?' And there is no free lunch, so if you pour money at this problem, you do have aftereffects. You create certain problems. I mean you are giving a medicine dosage to the patient on a scale that we haven’t seen in this country. And there will be aftereffects and they can’t be predicted exactly. But certainly the potential is there for inflationary consequences that would be significant.

  GHARIB: We all know that in the long-run everything is going to work out, but as you analyze President Obama’s economic plan, what do you think are the trade-offs? What are the consequences?

  BUFFETT: Well, the trade-off, the trade-off basically is that you risk setting in motion forces that will be very hard to stop in terms of inflation down the road and you are creating an imbalance between revenues and expenses in the government that is a lot easier to create than it will be to correct later on. But those are problems worth taking on, but you don’t get a free lunch.

  GHARIB: What about the regulatory system? Is it a matter of making new rules or simply doing a better job at enforcing the rules we already have?

  BUFFETT: Well, there are probably some new rules needed, but the regulatory system, I don’t think, could have stopped this. Once you get the bubble going, once the American public, the U.S. Congress, all the commentators, the media, everybody else, started thinking house prices could go nothing but up, you were creating a bubble that would have huge consequences because the asset class was so big. I mean, you had 22 trillion dollars, probably, worth of homes. It was the biggest asset of most American families and you let them borrow 100% of, in many cases, of the price of those and you let them refi up to where they kept taking out more and more and treating it as an ATM machine. The bubble was going to happen.

  GHARIB: But everybody is talking about, OK, we need more rules, we have to enforce them, we need to go after every institution, every financial market. Do you think that new rules will do the trick or do we have enough rules, we just have to police better?
  
  BUFFETT: Well, you can have a rule, for example, to prevent another real estate bubble. You just require that anybody bought a house to put 20% down and make sure that the payments were not more than a third of their income. Now we would not have a big bust ever in real estate again, but we also would have people screaming that you’re denying home ownership to all these people, that you got a home yourself and now you’re saying a guy with a 5% down payment shouldn’t get one. So I think it’s very tough to put rules out. I mean, I can design rules that will prevent it but it will have other consequences. It’s like I say, in economics you can’t just do one thing. And where the balance is struck on that, will be a political question. My guess is that it won’t be struck particularly well, but that’s just the nature of politics.

  GHARIB: You’ve said that we’re in an economic Pearl Harbor, so how bad are things really?

  BUFFETT: They’re bad, they’re bad. The credit situation is getting a little better now. Things have loosened up from a month ago in the corporate debt market. But the rate of business descent is at a pretty alarming pace. I mean, there is no question things have really slowed down. Peoples’ buying habits have changed. Fear has taken over and fear is a tough thing to fight because you can’t go on television and say don’t be afraid, that doesn’t work. People will get over it. They got greedy and they got over being greedy. But it took a while to get over being greedy and now the pendulum has swung way over to the fear side. They’ll get over that and we just hope that they don’t go too far back to the greed side.

  GHARIB: What’s your view on the recession? How much longer is it going to last?

  BUFFETT: I don’t know. I don’t know. I don’t know the answer to these things. The only thing is I know that I don’t know. Maybe other people think they know, but I have no idea.

  GHARIB: The last time we talked, you said back in the spring, you said the recession is not going to be a short-haul thing. What is your feel for it right now?

  BUFFETT: It isn’t going to be short, but I just don’t know, Susie. If I knew that. There’s no way of knowing.

  GHARIB: Berkshire Hathaway is in a lot of businesses that are economically sensitive, like furniture, paint, bricks. Do you see any signs of a pick-up?

  BUFFETT: No. No. The businesses that are either construction or housing-related, or that are just plain consumer businesses, they’re doing very, very poorly. The American consumer has stepped back, big time, and it’s contagious and there’s a feedback mechanism because once you hear about this then you get fearful and then don’t do things at all. And that will end at a point, but it hasn’t ended at this point. Now fortunately our two biggest businesses are not really tied that way - in insurance and in our utility business we don’t feel that, of course, those are different things. But everything that’s consumer related feels it big time.

  GHARIB: My question to you is, do you think that the psyche of the American consumer has changed, becoming more savers than spenders?

  BUFFETT: Well, it certainly has at this point and my guess is that continues for quite a while. What it will be five years from now, I have no idea. I mean the American consumer when they’re confident they spend and they’re not confident now, and they’ve cut it back. But who knows whether.. I doubt that that’s a permanent reset of behavior, but I think it’s more than a one-day or one-week or one-month wonder in that case.

  GHARIB: Is that a bad thing?

  BUFFETT: Well, it just depends who the consumer is. I mean, consumer debt within reason makes sense. It makes sense to take out a mortgage and own a home, particularly if you aren’t buying during a bubble. You are normally going to see house price appreciation if you don’t buy during a time when people are all excited about it. So I don’t have any moral feelings about debt as to how people should.. I think people should only take on what they can handle though and that gets to their income level.

  GHARIB: Let me ask it this way, Americans saving more may be good for consumers, but is that bad for business?
  
  BUFFETT: Well, it’s certainly bad for business in the short-term. Now whether it’s better for business over a 10 or 20 year period... If the American public gets itself in better shape financially that presumably is good for business down the road, but while they’re getting themselves in better shape, it isn't much fun for the merchant on Main Street.

  GHARIB: One thing that Americans aren’t buying these days are stocks. Should they be buying?

  BUFFETT: Well, just as many people buy a stock everyday as sell one so there are people buying stocks everyday and we’re buying stocks as we go along. If they’re buying into a business they understand at a sensible price they should be buying them. That’s true at any time. There are a lot more things selling at sensible prices now than there were two years ago. So clearly it’s a better time to buying stocks than a couple of years ago. Is it better than tomorrow? I have no idea.

  GHARIB: This financial crisis has been extraordinary in so many ways. How has it changed your approach to investing?
  
  BUFFETT: Doesn’t change my approach at all. My approach to investing I learned in 1949 or ‘50 from a book by Ben Graham and it’s never changed.

  GHARIB: So many people I have talked to this past year say this was unprecedented, the unthinkable happened. And that hasn’t at all impacted your philosophy on this?

  BUFFETT: No, and if I were buying a farm, I wouldn’t change my ideas about how to buy a farm or an apartment house or a business, and that’s all a stock is, it’s part of a business. So if I were going to buy stock in a private business here in Omaha, I’d look at it just like I would have looked at it two years ago and I’ll look at it the same way two years from now. I look at how much I am getting for my money, how good the management is, how the competitive position of that business compares to others, how durable it is and just fundamental questions. The stock market is, you can forget about that. Any stock I buy I will be happy owning it if they close the stock market for five years tomorrow. In other words I am buying a business. I’m not buying a stock. I’m buying a little piece of a business, just like I buy a farm. And that doesn’t change. And all the newspaper headlines of the world don’t change that. It doesn’t mean you can’t buy it cheaper tomorrow. It may turn out that way. But the real question is did I get my money’s worth when I bought it?

  GHARIB: One of your famous investing principles is, “Be fearful when others are greedy and greedy when others are fearful.” So is this the time to be greedy, right?

  BUFFETT: Yeah. My greed quotient has risen as stocks have gone down. There’s no question about that. The cheaper something gets that you’re going to buy, the happier you feel, right? You’re going to buy groceries the rest of your life; you want grocery prices to go up or down? You want them to go down. And if they go down you don’t think, gee, I got those groceries sitting in my cabinet at home and I’ve lost money on those. You think I am buying my groceries cheaper, I am going to keep buying groceries. Now if you’re a seller, net, obviously you like prices higher. But most people listening to this program, certainly I, myself, and Berkshire Hathaway, we’re going to be buying businesses over time. We like the idea of businesses getting cheaper.

  GHARIB: So where do you see the opportunities in the stock market right now?

  BUFFETT: That one I wouldn’t tell you about.

  GHARIB: Let me throw out some sectors and you just tell me quickly how you feel about these sectors.

  BUFFETT: Susie, I am not going to recommend anything.

  GHARIB: Even in general? For example, a lot of people now are looking at infrastructure companies. Is that a sector that you find attractive?

  BUFFETT: I wouldn’t have any comment. What they ought to do is look at businesses that they understand, they‘d be happy owning for years if there was never a quote on the stock. Just like they buy in privately into a business in their hometown, they ought to forget all about what somebody says is going to be hot next year or the year after, whatever. Because what’s going to be hot, you may be paying twice as much for as something that’s not going to be hot. You don’t want to think in terms of what’s going to be good next year, you want to think in terms of what’s a good business to be in and then buy it at an attractive price. And then you can’t lose.

  GHARIB: Do you see more opportunities in the U.S. compared to overseas?

  BUFFETT: Well, I am more familiar with the U.S. We have such a big market. I see lots of opportunities here and I see lots of opportunities around the world.

  GHARIB: Let me ask you a little bit about investor confidence. Investor confidence was so shattered last year. What do you think it's going to take to restore confidence?

  BUFFETT: If people were dependent on the stock market going up to be confident, they’re in the wrong business. They ought to be confident because they look at a business and they think, I got my money’s worth. They ought to be confident if they buy a farm, not on whether they get a quote the next day on the farm, but they ought to look at what the farm produces, how many bushels an acre do they get out of their corn or soybeans and what prices do they bring. So they ought to look to the business as to whether to be confident compared to the price that they paid and they ought to forget about what anybody is saying, including me on television, or what they’re reading in the paper. That’s got nothing to do with whether they made a good decision or not. What’s got to do with whether they made a good decision is what kind of business they bought and what they paid for it.

  GHARIB: People are reeling from this whole Bernie Madoff scandal. What would you say to people who have lost trust in the financial system?

  BUFFETT: They shouldn’t have lost, you don’t need to lose trust in the American system. If you decide to buy a farm and you pay the right price for it, you don’t need to lose faith in American agriculture, you know, because the prices of farms go down.

  GHARIB: But you know what I’m saying. This was on top of everything else. People lost money last year in companies that they thought were rock solid. As I said, the unthinkable happened, and then on top of it, this whole Bernie Madoff scandal. It has undermined people’s sense of well-being about our system. So what do you say to people who have lost trust?

  BUFFETT: Well, they may be better off not being in equities. If they’re really depending on somebody else and they don’t know anything about the somebody else, they’ve got a problem. They shouldn’t do that. I mean there are going to be crooks out there and this guy was a crook on a scale that we’ve never seen before. But you ought to know who you’re dealing with. But if you’re going to buy a stock in some business that’s been around for a 100 years and will be around for 100 more years and it’s not a leveraged company and it sells some important product and it’s got a strong competitive position and you buy it at a reasonable multiple of earnings, you don’t have to worry about crooks, you’re going to do fine.

  GHARIB: Is there any take away lessons from the Bernie Madoff story?

  BUFFETT: Well, he was a special case. I mean here is a guy who had a good reputation for 30 years or something, and the trust of a lot of people around him. So it’s very easy to draw assurances from the fact that if fifty other people that are prominent and intelligent trust the guy, that maybe you should trust him too. But I wouldn’t put my trust in a single individual like that. I would put my trust in a very good business. I would want a business that was so good that if a so-so guy was running it, it would still certainly do well and there are plenty of businesses that are like that.

  GHARIB: So, are you saying that investing has gotten so complicated that investors should stick to what they know? Is that the take-away lesson?

  BUFFETT: You should always stick to what you know. I say the 'know-nothing investor' and there’s nothing wrong with being a 'know-nothing investor.' I mean, I spend 60 hours a week thinking about investments, and most people have got jobs and other things to do. They can buy index funds. And they’re not going to do better than an index fund if they go around and trust some guy that's promising them very high returns. If you buy a cross section of American business and you don’t buy it during a period when everybody is all enthused about stock, you’re going to do fine over 10 or 20 years. If you buy something with the idea that you’re going to do fine over 10 months, you may or may not. I do not know what stock is going be up 10 months from now, and I never will.

  GHARIB: What about Berkshire Hathaway stock? Were you surprised that it took such a hit last year, given that Berkshire shareholders are such buy and hold investors?

  BUFFETT: Well, most of them are. But in the end, our price is figured relative to everything else. So the whole stock market goes down 50 percent, we ought to go down a lot because you can buy other things cheaper. I‘ve had three times in my lifetime, since I took over Berkshire, when Berkshire stock’s gone down 50 percent. In 1974, it went from $90 to $40. Did I feel badly? No, I loved it. I bought more stock. So, I don’t judge how Berkshire is doing by its market price, I judge it by how our businesses are doing.

  GHARIB: Is there a price at which you would buy back shares of Berkshire? $85,000? $80,000?

  BUFFETT: (Laughs.) I wouldn’t name a number. If I ever name a number, I’ll name it publicly. I mean, if we ever get to the point where we’re contemplating doing it, I would make a public announcement.

  GHARIB: But would you ever be interested, are you in favor of buying back shares?

  BUFFETT: I think if your stock is undervalued, significantly undervalued, that a management should look at that as an alternative to every other activity. That used to be the way people bought back stocks, but in recent years, companies have bought back stocks at high prices. They’ve done it because they like supporting the stock. They don't ever say it.

  GHARIB: In your case, with Berkshire. I mean, it's down a lot. It was up to 147-thousand last year. Would you ever be opposed to buying back stock?

  BUFFETT: I’m not opposed to buying back stock.

  GHARIB: OK, I'm going to move on. Everyone wants to know your plans. What you’re going to do with all of Berkshire Hathaway’s cash, some 30 billion dollars? Is this now the right time to do a big acquisition?

  BUFFETT: Well, we’ve spent a lot of money in the last four months. We spent five billion on Goldman Sachs, three billion on GE, 6.6 billion on Wrigley, we’ve got three billion committed on Dow. We’ve spent a lot of money. We’ve got money left, but I love spending money. Cash makes me very unhappy. I like to always have enough and never way more than enough, but I always want to have enough. So we would never go below $10 billion of cash at Berkshire. We’re in the insurance business - we got a lot of things. We’re never going to depend on the kindness of strangers. But anything excess in that, I love the idea of buying things and the cheaper they get, the better I like it.

  GHARIB: You’ve been talking about doing a big acquisition for a while now. What are you waiting for?

  BUFFETT: Well, we’ve spent 20 billion dollars. (Laughs.) That might not be ..

  GHARIB: I mean in terms of a company, buying …

  BUFFETT: Well, we’ll wait for the right deal. We had a deal to buy Constellation for roughly five billion and then events with the French coming in meant that we didn’t do it. But I was delighted to commit for that five billion dollars for Constellation Energy. And it could happen tomorrow. That one happened on a Tuesday afternoon. I mean, it happened like that. Constellation was in big trouble and we flew back that day, the people at (Berkshire Hathaway subsidiary) MidAmerican, met on Tuesday and made them an offer that night.

  GHARIB: It seems that you’re pretty optimistic about the long-term future of the American economy and stock market, but a little pessimistic about the short term. Is that a fair assessment of where your head is right now?

  BUFFETT: I am unquestionably optimistic about the long-term. I’m more than a little pessimistic about the short-term, but that doesn’t mean I am pessimistic about the stock market. We bought stocks today. If you tell me the economy is going to be terrible for 12 months, pick a number, and then if I find something that is attractive today, I am going to buy it today. I am not going to wait and hope that it sells cheaper six months from now. Because who knows when stocks will hit a low or a high? Nobody knows that. All you know is whether you’re getting enough for your money or not.

  GHARIB: All right, I want to move on to our 30th anniversary and wrap-up some of your reflections and thoughts on that. As you know, it’s the 30th anniversary of Nightly Business Report. As you look back on the past three decades, what would you say is the most important lesson that you’ve learned about investing?

  BUFFETT: Well, I’ve learned my lessons before that. I read a book, what is it, almost 60 years ago, roughly, called The Intelligent Investor, and I really learned all I needed to know about investing from that book, and particularly chapters 8 and 20. So I haven’t changed anything since. I see different ..

  GHARIB: Graham and Dodd?

  BUFFETT: Well, that was Ben Graham’s book The Intelligent Investor. Graham and Dodd goes back even before that, which was important, very important. But, you know, you don’t change your philosophy, assuming you think have a sound one. And I picked up, I didn’t figure it out myself, I learned it from Ben Graham. But I got a framework for investing which I put in place back in 1950, roughly, and that framework is the framework I use now. I see different ways to apply it from time to time, but that is the framework.

  GHARIB: Can you describe what it is? I mean, what is your most important investment lesson?

  BUFFETT: The most important investment lesson is to look at a stock as a piece of a business, not as some little thing that jiggles up and down, or that people recommend, or people talk about earnings being up next quarter, something like that. But to look at it as a business and evaluate it as a business. If you don’t know enough to evaluate it as a business, you don’t know enough to buy it. And if you do know enough to evaluate it as a business and it's selling cheap, you buy it and you don’t worry about what it does next week, next month, or next year.

  GHARIB: So if we asked for your investment advice back in 1979, back when Nightly Business Report first got started, would it be any different than what you would say today?

  BUFFETT: Not at all. If you’d ask the same questions, you’d have gotten the same answers.

  GHARIB: Thank you so much Mr. Buffett. Thank you so much, always a pleasure talking to you.

  BUFFETT: Thank you, been a real pleasure.

Banking System Is Effectively Insolvent

Posted on Bloomberg news.

• Jan. 20 (Bloomberg) -- U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.
  
  “I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
  
  Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.
  
  President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.
  
  Bank of America Corp., the largest U.S. bank by assets, posted a quarterly loss of $1.79 billion last week, its first since 1991, and received $138 billion in emergency government funds. Citigroup Inc. posted an $8.29 billion fourth-quarter loss, completing its worst year, and plans to split in two under Chief Executive Officer Vikram Pandit’s plan to rebuild a capital base eroded by the credit crisis.
  
  “The problems of Citi, Bank of America and others suggest the system is bankrupt,” Roubini said. “In Europe, it’s the same thing.”

Source: http://bloomberg.com/apps/news?pid=20601087&sid=a746r_1q9OOY&refer=home

Baltic Dry Index Makes Impressive Rebound

The Baltic Dry Index surged another 5% to close at 945. (Do remember that the recent low was around 600+ a month ago!)

And if you look at the recent three month charts of the BDI, the rise has been impressive.

However, many are still not impressed at all.

Published last week: Baltic Dry Index rebounds; shipowners not enthused

• Bangalore: Indian shipowners are laying up more vessels that carry dry bulk commodities such as coal, iron ore, steel and grains, and even cancelling orders for new ships despite a rebound in the London-based Baltic Dry Index (BDI), a key measure of the health of global trade.
  
  Last week, Great Eastern Shipping Co. Ltd, India’s biggest private ocean carrier, cancelled orders for two new mid-sized dry bulk carriers it had placed with China’s Cosco Shipyard Group.
  
  State-run Shipping Corp. of India Ltd (SCI), India’s biggest shipping firm, has most recently laid up one more of its dry bulk carriers—the 12-year-old Maharashtra—that was due for dry docking and special survey. In December, SCI had laid up the 23-year-old dry bulk ship Lok Maheshwari, which was also due for dry docking and special survey.
  
  Lay-up is a shipping term that means temporary cessation of trading of a vessel by the shipowner.
  
  Apart from routine annual maintenance, a ship has to undergo dry-docking twice in five years and a special survey every four years to be allowed to operate under global maritime regulations.
  
  Firms that until a few months ago ran their old dry bulk carriers after undertaking dry docking, surveys and renewals are now reconsidering investing Rs5-6 crore for such an exercise because falling rentals no longer can cover operating expenses. The latest lay-ups and order cancellations come in spite of the BDI bouncing back.
  
  On Wednesday, the index climbed 9 points to 920 points from 911 points on Tuesday.
  
  The index, which measures costs for shipping dry bulk commodities such as coal, iron ore, steel and grains, had plunged to to 663 points in December from a record level on 20 May, pushed down by a credit squeeze and waning demand for global trade.
  
  Frozen credit lines have paralyzed the shipping trade since mid-September, drastically reducing shipments and, in turn, the use of dry bulk carriers.
  
  A lack of access to letters of credit, in which banks guarantee payment for merchandise, added to the problem.
  
  As for the recent rally in the BDI, experts are hesitant to read it as an indicator that the market has turned.
  
  “It is not a sustained rally as of now,” said T.V. Shanbhag, group adviser to India’s biggest ship-broking firm, Mumbai-based Trans Ocean Agency Pvt. Ltd. “It is momentary. The problems with letters of credit persist.”
  
  He added that given the extent of the fall over the past few months, a minor improvement of even 5% or 10% will not make a difference.
  
  Others, however, suggest the sharp fall was inevitable because the index had been heavily oversold.
  
  “As a result, even some positive development could lead to some kind of a recovery in the sector,” K. Ramachandran, chief investment officer at Barclays Wealth, the wealth management business of Barclays Bank Plc., said by phone from Mumbai. “It could be a technical bounce-back.”
  
  Conditions should become clearer when China, the world’s biggest importer of iron ore, completes price negotiations with suppliers for its new annual contract beginning February, said Ramachandran.

On the very same day, this was posted on Bloomberg News. Half of Commodity Shippers May Breach Loans by April, RBS Says

• By Alaric Nightingale
  
  Jan. 14 (Bloomberg) -- As many as half of publicly traded commodity shipping lines may breach their loan covenants by April after a record collapse in hire rates, according to Royal Bank of Scotland Group Plc, the third-largest lender to the industry.
  
  The cost of second-hand capesizes, the largest group of commodity carriers, plunged 70 percent last year, according to the Baltic Exchange in London. Fleet values are one of the key covenants used. Banks review loans as often as every quarter, Lambros Varnavides, the bank’s head of credit to the shipping industry, said in interviews in London on Jan. 12 and 13.
  
  “It’s hard to avoid a breach when asset values have fallen so significantly,” said Varnavides, who is global head of shipping. Assuming rates and values don’t rebound in the next several months, shippers in breach of covenants will likely have to renegotiate loans, he said.
  
  The Baltic Dry Index, a measure of shipping costs for commodities, slumped 92 percent last year, causing at least four shipowners to fail since October. Demand for raw materials plunged as Europe, Japan and the U.S. entered their first simultaneous recessions since World War II.
  
  The ratio of losses on RBS’s shipping loans has averaged about 0.03 percent in the last 15 years and that’s “not going to change much” in the “long run,” Varnavides said. The bank has lent $25 billion to shippers, of which $18 billion has actually been used. About 60 percent is financing oil and gas tankers.
  
  “We remain confident in the quality of our portfolio and there’s a benefit of loans being re-priced higher,” the managing director said.
  
  About a third of closely held coal, ore and grain shippers may also be close to breaching loan covenants, Varnavides said. Most banks will be more interested in maintaining their relationship with shippers than seeking the highest possible interest rates when renegotiating loans, Varnavides said.
  
  Shipping Loans
  
  “In many ways, it’s an old-fashioned business, it has old- fashioned virtues,” he said.
  
  Loans to shipowners are being made at 200 to 300 basis points over the London interbank offered rate, compared with less than 100 points about 18 months ago, Varnavides said. A basis point is 0.01 of a percentage point and Libor is the rate banks say they charge each other for loans.
  
  RBS is the third-largest lender to owners based on how many shipping loans it holds directly. HSH Nordbank AG and DnB NOR ASA are the biggest, Varnavides said.

Yes that was last week and perhaps those two articles were rather stale.

The following news was posted yesterday on Reuters on Dryships. Dryships suspends dividend, dumps expansion plans

• By Arup Roychoudhury and Adveith Nair
  
  BANGALORE, Jan 22 (Reuters) - Greek bulk carrier Dryships Inc (DRYS.O) said it would suspend its dividend, cancel previous ship orders and sell some ships as it strives to preserve capital, sending its shares down as much as 20 percent.
  
  The company also forecast fourth-quarter earnings before special items to be below market estimates citing weakness in the drybulk market and charges associated with the actions announced today.
  
  Dryships said lower freight rates and a tighter credit market was forcing it to take the actions which are aimed at reducing capital expenditures by over $1.5 billion.
  
  The Baltic Exchange's chief sea freight index .BADI, which monitors prices to ship key dry commodities, has fallen more than 90 percent from the highs it touched in May 2008.
  
  Shares of the company, which have lost 88 percent of their value from the highs touched in May, were down more than 17 percent at $11.98 in afternoon trade on Nasdaq. They had earlier touched a low of $11.70.
  
  Jefferies & Co analyst Douglas Mavrinac said Dryships' biggest challenge was maintaining its balance sheet strength and the cancellation announced today will bolster its balance sheet quite dramatically.
  
  "When the market digests the positives out of this, they'll realise the news was actually quite good."
  
  "The big positive... is the fact that they are saving a billion and a half dollars going forward." he added.
  
  DEAL OFF
  
  Dryships said it was cancelling the purchase of nine Capesize vessels, which are the largest type of ships that can haul dry bulk commodities like iron ore, coal and grains due to the "considerable decrease" in the asset values .
  
  An abrupt end to the recent boom for bulk shippers has left many laden with debt for ships they bought at the top of the market. They now owe more than their ships are worth.
  
  The company had agreed to buy these ships in October 2008 for $1.17 billion from clients of Cardiff Marine Inc, including affiliates of Dryships' Chief Executive George Economou, and some third parties.
  
  Cardiff Marine, which was founded by Economou, provides technical and commercial ship-management to Dryships.
  
  The consideration to cancel the transaction will consist of the issuance of 6.5 million shares, the company said.
  
  Dryships has also agreed to dispose three capesize newbuilds. The agreement will release it and its relevant subsidiaries from the purchase agreements for these vessels.
  This agreement will also lower the company's total obligations in the amount of $364 million in exchange for a total consideration of $116.4 million.
  
  The financial crisis that started last year and evolved into a global economic crisis has forced the dry bulk shippers to drastically cut down on their expansion plans.
  
  In December, Dryships also cancelled a $400 million purchase of four Panamax vessels, and a month earlier rival Genco Shipping & Trading Ltd (GNK.N) agreed to cancel a deal to buy six dry bulk vessels.
  
  DIVIDEND SUSPENDED
  
  Dryships said beginning with the fourth quarter it has suspended dividend payout of 20 cents a share.
  
  In the past month a slew of other dry bulk shippers, including Diana Shipping Inc (DSX.N) and Eagle Bulk Shipping Inc (EGLE.O) have suspended their dividends to preserve cash.
  
  Analyst Mavrinac said the dividend suspension was expected. "I don't see the company resuming dividend in the near future. It was a token dividend in the first place," he added.
  
  Analyst Gregory Lewis of Credit Suisse said Dryships was different from other drybulk players and was never considered a yield investment.
  
  WEAK OUTLOOK
  
  For the fourth quarter, Dryships forecast a net loss of $380.6 million to $431.4 million, or $6.89 to $7.81 per share.
  
  Excluding items, the company expects a net income of $34.7 million to $39.3 million, or 63 cents to 71 cents per share.
  
  Analysts on average, were expecting a profit of $1.28 per share, on revenue of $225.3 million.
  
  Analyst Mavrinac said while the outlook was below expectations, it wasn't "overly surprising," seeing as how challenging the markets were in the fourth quarter.
  
  Credit Suisse's Lewis said the weakness in the dry bulk market would continue for the majority of 2009.
  
  "We are going to see demand actually pick up later in the first and the second quarters." The issue is a lot of new supply coming into the market, which keeps dayrate in a low to mid cycle level.

Not trusting these news?

Well here's a report that you could read. It's posted on reportLinker.com and do note that it's not free: Global Dry Bulk Shipping Industry: An Analysis

Recession Or Depression For China?

There are some who believed that Asia one day 'can' be a consuming giant.

I strongly believe against it. And I had highlighted an editorial the other day: Can China Adjust To The Lack Of Spending From US?

Here's another view from Edward Hugh of China Economy Watch who wrote the following yesterday. China Nears Recession Point As GDP Slumps

Let me highlight some issues.

• China’s National Bureau of Statistics released fourth quarter GDP growth statistics for 2008 today, and it turns out that (according to their initial estimates) the Chinese economy expanded by 6.8 per cent in the last quarter of the year when compared with the same period in 2007. This was the weakest quarterly year on year growth rate in seven years. For the year as a whole, the economy grew 9 per cent, down from the revised 13 per cent growth rate in 2007.
  
  Strikingly, Japanese exports to the US were down some 37% yoy, losing some 26pp since the 11% yoy contraction in July. But we cannot highlight strongly enough how truly mindboggling Japan’s collapse in exports to China are. Last July they were expanding at a 16% yoy pace. Now they are contracting at a 35% yoy rate! This is a phenomenon throughout the region. Hence despite the notoriously manipulated Chinese GDP data showing a shocking slowdown in GDP growth to 6.8% yoy, I would eat my hat if the Chinese economy was doing anything other than contracting right now. Albert Edwards Societe Generale

• At S'pore's port container terminal (the busiest in the world), a third of the cranes are idle. There are some companies saying they have inventories stretching 6 months out. December's plunge in Asian exports was due to the shutdown of electronic companies during the Christmas period because of the pile up in inventories.

• Basically it seems to me that few people other than professional macro economists and bank analysts (and far from all of these if the truth be told) really realise what the implications of such a dramatic decline in year on year GDP actually means. If the quarter on quarter rate of expansion was very low indeed, possibly verging on the negative then - guessing a bit, you know what they call back of the envelope stuff - this means output must have been moving in the October-December period somewhere in an annualised 0 to 2% range. This means we may well see quarter on quarter negative growth in 2009 in China, and that the possibility of a technical recession of two consecutive quarters of negative growth must be over 50% at this point. It wasn't so long ago that the consensus was saying that annual GDP growth which was as high as 6% would be tantamount to a recession!
  
  It is really very frustrating to find that with all the trillions of dollars at issue, and a whole army of China watchers, virtually no one seems to be trying to derive monthly and quarterly rates of movement from the official statistics.
  
  The OECD do at least seem to be aware of this problem and they do have a lead indicator for China (which includes items like cargo handled at ports, Enterprise deposits, Chemical fertilizer production, Non ferrous metal production, a Monetary aggregate M2, and Imports from Asia. Below I have a chart which compares this indicator for both Spain and China. Since Spain, as we know, is having a very strong contraction at this moment in time, it gives some sort of reference point. What is so striking is that it appears China is now slowing much more rapidly than even Spain, and GDP may, looking at the steepness of the recent month on month drops,have even started contracting in November. This is obviously all shell shock stuff.

The final passage..

• Export Slump
  
  China is an export driven economy, and you can't simply switch from external to internal demand as a driver at the click of a finger (or mouse, if you make your financial transactions online). Another economist who mailed me this morning said this:
  
  "I don't cover China so unfortunately, my views on that country are not very informed, but I do agree with your point about the China internal consumption argument. In my opinion, the belief that domestic consumption will take over from exports as a growth engine is nothing more than myth. Perhaps I'm misunderstanding the argument, but when factories and the export sector, in general, are bleeding jobs, it would be rather odd for internal consumption to take off at this point in time."
  
  So what is happening to exports? Well, China’s exports fell the most in nearly a decade in December, with shipments down by 2.8 percent over December 2007. That compares with a 21.7 percent increase a year earlier. Over the whole of 2008 exports were up by 17.2 percent, a reduction on the 25.7 percent gain registered in 2007, and suggesting that the drop in the last two months of the year may have been very sharp indeed. Exports to the European Union, China’s biggest export market, fell 3.5 percent in December from a year earlier. Shipments to the U.S. dropped 4.1 percent. Imports dropped even more sharply - by 21.3 percent, meaning the trade surplus failed to fall, and at $39 billion it remained the second-biggest on record.
  
  And China's declining imports are also being felt elsewhere, since in Japan's December trade report (which was out this morning, and was a complete horror story) we find that exports to China were down 35.5 percent year on year.
  
  So to some up, while it may well be true that China is not (yet) entering the Second Great Depression, I am arguing that China is really going to be one of the worst case scenarios in the current global recession, and that consensus thinking still has a very very long way to go in catching up with events in the China case.

Is The Gold Market Really Rigged?

Dedicated to .... ( *whistle2* )

Posted on MoneyWeek.com Is The Gold Market Really Rigged?

• I've been looking at some charts and an astonishing pattern has become apparent. It's a pattern which, if you'd traded it methodically, would have earned you 1% every 20 days over a period of 24 years. That compounds to a staggering 2,050%!

• What is more astonishing is how this pattern has accelerated since 2007. Sell gold in the morning, buy it back in the afternoon, and a cool 1.78% 20-day profit will be yours:

• Finally, before I go, here's an interesting statistic for you: the first fixing was in September 1919 when the gold price was £4 18/9d per ounce. It's now more than £600. My, how well sterling has maintained its purchasing power. Here's a chart that tells you what a rotten investment the British pound has been ever since we came off the gold standard in 1914. It comes from a House of Commons research paper (03/82 11 Nov 2003 [pdf]) – so they know.

Now this very same posting was highlighted by Jesse: Is Gold and the Balance of Power Shifting from the West to the East?

Quote:

• We might agree with the surmise that it involves the steady selling of leased gold from the West into the gold markets, but that could only be confirmed by an audit, and an admission from some large central bank that they have been obligating increasingly large amounts of their inventory into the public markets in a previously undisclosed manner.
  
  The transaction costs are a problem if you are standing at the retail counter, we fear, so don't get any ideas about playing this trade. Its a sinecure for the big boys only, who can take advantage of market inefficiencies by trading in large, ever increasing volumes, like the whiz kids at LTCM did until they blew their trade book up.
  
  Oddly enough, the data from the Office of the Comptroller of the Currency report on Derivates shows that only two banks, JPM and HSBC, are holding almost $124,000,000,000 in gold derivatives between them, approximately 98% of all gold derivatives in the world.
  
  At $850 per ounce, that represents about 145,882,353 ounces of gold.
  
  As the tides of monetary bubbles recede, curiosities are turning up on the beach every day.

The chart and table provided by Jesse speaks volume on the issue! Do give Jesse's blog a read. :)

And do try google the phrase "Is The Gold Market Really Rigged? "

Shocked?

Another worth while reading is from Rob Kirby: Fed Manipulating Market Prices, Gold, Oil and Bonds

• In short, says Fell, "don't measure the Dollar against the Euro, or the Euro against the Yen, but measure all paper currencies against gold, because that's the ultimate test."
  
  Fell's admission coupled with the recently unearthed account of the Fed's game plan shows that gold “is” and always has been feared as competition for the U.S. Dollar and a game plan has long been in place to thwart it. This explains why economic data has been falsified and the price of gold has been surrepticiously managed and interfered with by the United States Treasury and the Federal Reserve.
  
  The mounting evidence is this regard is so compelling that from this point forward any ‘economist' attempting to explain our current situation without prefacing their explanation with an EXPLICIT ACKNOWLEDGEMENT that our capital markets are not free and are in fact RIGGED by officialdom – their analysis is not worth the time to read it. In this regard, perhaps never have more prescient words been uttered than GATA's Chris Powell in Washington in April, 2008 – when he opined, There are no markets anymore, just interventions .
  
  The recent decoupling in price of gold as measured by the spread between the futures price and the cost to obtain physical ounces is a stark reminder that smart money is beginning to repudiate fiat money by seeking tangible ownership of goods perceived to posses value instead of derivative ‘promises' to deliver the same.

Pay Cut For Singapore Ministers!

Published two days ago.

• SINGAPORE, Jan 20 - The annual salaries of Singapore's ministers and senior civil servants are expected to fall by 12 to 20 percent this year in line with the shrinking economy, local media reported on Tuesday.
  
  Defence Minister Teo Chee Hean, who is also minister in charge of the civil service, told Parliament on Monday that senior permanent secretaries and entry-grade ministers will likely receive S$1.54 million , which is a drop of 20 percent from last year.
  
  Younger officers in the elite Administrative Service -- typically top performers in their early to mid-30s -- will receive S$351,000 or about 12 percent less, Teo added.
  
  "As the salaries are linked to economic performance, the 2009 salaries may be subject to further adjustments given the volatility of the economy," he said.
  
  Singapore pegs ministers and senior civil servants' pay to top earners in the private sector, saying it needs to pay well to retain talent in the government service.
  
  Prime Minister Lee Hsien Loong last year received an estimated S$3.76 million, about five times the annual salary of outgoing U.S. President George W Bush.
  
  Singapore, which became the first Asian economy to slip into recession last year, has forecast the economy could shrink by up to 2 percent this year.
  
  It is considering dipping into its reserves worth hundreds of billions of dollars for the first time to tackle the slump, officials were quoted as saying on Monday. [ID:nSP388780]
  
  The government could draw on the central bank's foreign reserves that totalled $174.2 billion in December, or its two secretive sovereign funds GIC and Temasek that had at least a combined $230 billion in assets in reported figures last year.

See also: Worst Ever Recession For Singapore

Keppel Land Profit Pluges!

Posted yesterday: Worst Ever Recession For Singapore

Today one of the news clip caught my attention. Keppel Land, the property arm of giant Keppel group announced that its profits plunged 88 percent.

• SINGAPORE: Keppel Land Ltd, a developer controlled by the world’s largest oil-rig builder, said fourth-quarter profit dropped 88 per cent as home sales slowed in Singapore and overseas markets.
  
  Net income declined to S$68.5 million (S$1 = RM2.40), or 9 cents a share, in the three months ended December 31, from S$572.3 million, or 78.1 cents, a year earlier, the Singapore-based developer said in a statement to the stock exchange.
  
  Sales declined 47 per cent to S$197.4 million. — Bloomberg

Back in October 2008 Keppel Land had already announced rather poor earnings. The warning signs were there already.

• Keppel Land has turned in a 23.2 per cent drop in earnings for the first nine months of 2008.
  
  Net income came in at S$159 million. Revenue for the same period fell by almost 38 per cent on-year to S$645 million.
  
  Keppel Land said the global economic crisis has hurt residential sales in China, Vietnam, India and Indonesia in the third quarter of 2008.
  
  It also saw lower earnings from its property services and hotels division.
  
  For the third quarter, the company’s profit fell 43.6 per cent on-year to S$46.2 million, compared with S$81.8 million a year earlier.
  
  Sales dropped 51.4 per cent from S$382 million to S$185.8 million.

And the following screen shot of Keppel Land charts shows it all.

Update Again On MaeMode

Here's an update to the posting: Would You Buy MaeMode?

MaeMode announced its earnings tonight.

And as you can see, the key yardsticks simply got weaker and weaker!

The margins is still thin. Net debt post increased yet again and the trade receivables are still ballooning at an extremely alarming rate!

Past postings on MaeMode:

1. A look at MaeMode again
2. Mae, I hope I am not WRONG!
3. Reply to Mae, I hope I am not WRONG!
4. MaeMode Again
5. The Trade Receivables In MaeMode
6. Would You Buy MaeMode?

Worst Ever Recession For Singapore

Published on theEdgedaily.com: Singapore in worst-ever recession after 4Q slump

• 21-01-2009:- Singapore in worst-ever recession after 4Q slump
  By Kevin Lim & Neil Chatterjee
  
  SINGAPORE: Singapore's economy shrank more than expected in the fourth quarter (4Q), prompting the government to declare the nation was in its worst ever recession and fanning expectations that the central bank will let its currency weaken.
  
  The Singapore economy shrank in the fourth quarter at a seasonally adjusted, annualised pace of 16.9%, deeper than advance estimates of a 12.5% contraction, detailed government data showed on Jan 21.
  
  The government said it now expected Singapore's economy to contract between two and five percent this year, slashing its forecast further from an already downgraded outlook of a range of minus 2% to plus 1% published just three weeks ago.
  
  "The Singapore economy is going through its sharpest, deepest and most protracted recession," the Trade Ministry's second permanent secretary Ravi Menon said at a media briefing.
  
  Singapore's central bank said on Jan 21 that its monetary policy stance of zero appreciation in the Singapore dollar announced last October was intact and it had no plans to review monetary policy ahead of a scheduled policy meeting in April.
  
  But analysts said the gloomy economic forecasts and grim fourth quarter data increased the likelihood the central bank will loosen policy and let the Singapore dollar slide.
  
  "I'm bearish for the Singapore dollar. It's worse than I expected," said Irene Cheung, currency strategist at Royal Bank of Scotland in Singapore.
  
  "I expect monetary policy to remain accommodative -- they should have recentered the band earlier, but they might still do it -- the sooner the better."
  
  Singapore manages monetary policy by adjusting the value of its currency relative to those of its main trading partners in an undisclosed band. The Singapore dollar stood at 1.5037 against the US dollar by 0050 GMT, compared with 1.51 before the data.
  
  The government expects key non-oil domestic exports will shrink 9%-11% this year, while total trade, which includes entreport activities, may plunge 17%-19%.
  
  From a year ago, fourth quarter gross domestic product, or the value of all goods and services produced in Singapore, fell 3.7% following a drop of 0.2% in the third quarter.
  
  Singapore last reported three straight quarters of economic contraction in 2001 after the dotcom bubble burst in the United States, badly hurting the city-state's key electronics sector.
  
  The economy grew 1.2% for all of 2008, slowing sharply from 7.7% expansion in 2007.
  
  The government said manufacturing output in the fourth quarter shrank 10.7% from a year earlier, while services contracted 0.1%. -- Reuters
  

Prince Alwaleed's Kingdom Holding Suffer Massive Losses In Q4

Posted On BusinessWeek. Saudi prince's firm loses $8.3B in 4Q

• Saudi prince's firm loses $8.3B in 4Q
  By ADAM SCHRECK
  
  DUBAI, United Arab Emirates
  
  The Saudi investment company that bet big on now-ailing Citigroup and other major global companies said Tuesday it lost more than $8 billion in the last three months of 2008.
  
  Prince Alwaleed bin Talal's Kingdom Holding Co. attributed the drop to losses stemming from the company's investments in capital markets, according to a statement posted on the Saudi Tadawul exchange's Web site.
  
  Kingdom Holding said it lost 30.98 billion riyals ($8.26 billion) in the fourth quarter of 2008. That compares with a gain of 255.6 million riyals ($68.2 million) in the same period a year earlier.
  
  "It's significant," said John Sfakianakis, chief economist at SABB, the HSBC Holdings PLC affiliate formerly known as Saudi British Bank. "I don't think that we have seen such a loss in the recent corporate history of Saudi Arabia."
  
  Kingdom Holding was established in 1980 and initially focused on construction projects before evolving into one of the largest investment companies in the United States and elsewhere.
  
  The firm invests in a number of well-known companies, such as Apple Inc. and News Corp.
  
  A nephew of Saudi Arabia's king, Alwaleed, 52, is ranked as the world's 13th-richest person by Forbes magazine. He has recently taken a big hit in his holdings, however.
  
  Dubai-based magazine Arabian Business reported last month that Alwaleed's net worth fell to $17.08 billion from $21 billion in 2007. The magazine, at the time, said he remained the world's richest Arab.
  
  In November, Alwaleed announced he would raise his stake in Citigroup Inc. to 5 percent, from less than 4 percent -- a move that came as the banking giant was facing a possible collapse.
  
  Citigroup last week posted a loss of $8.29 billion, its fifth straight quarterly deficit, and laid out plans to reorganize itself. The company's shares have lost more than 80 percent of their value in the past year.
  
  Sfakianakis said that although Kingdom Holding's loss was substantial, it doesn't come as a complete surprise given the declines in markets around the world.
  
  "I wouldn't downplay it, but at the same time ... you can fairly say that the top 50 businessmen throughout the world have seen similar, significant losses taking place throughout 2008," he said.
  
  Kingdom Holding said its 2008 losses totaled 29.91 billion riyals ($7.98 billion). That compares with a profit of 1.21 billion ($322.7 million) for the prior year.

Betting on a wrong horse can really hurt!!!!!!

More Comments On Tenaga Nasional

Published on Star Business: Multiple issues continue to confront TNB

• Wednesday January 21, 2009
  Multiple issues continue to confront TNB
  By FINTAN NG
  
  PETALING JAYA: Volatile fuel costs, higher reserve margins due to falling demand and foreign exchange (forex) losses will continue to haunt Tenaga Nasional Bhd (TNB) for the forseeable future.
  
  Analysts see a weaker outlook for the national utility operator, which reported a net loss of RM944.1mil on revenue of RM7.89bil for the first quarter ended Nov 30, 2008.
  
  The loss was mainly due to an unrealised forex translation loss of RM1.40bil as the ringgit weakened against the US dollar and the yen, which together made up 47.5% of its foreign debt or RM12.1bil.
  
  By the end of the quarter under review, the ringgit was 6.91% lower than the US dollar and 21.55% lower than the yen.
  
  The ringgit has continued to weaken against the yen but has stabilised against the US dollar since the start of the year.
  
  According to OSK Research Sdn Bhd associate director Chris Eng, TNB is not likely to reduce its exposure to the yen because the loan it took from the Japan International Cooperation Agency was a 30-year loan at an interest rate of less than 1%.
  
  “These are paper losses. In terms of translation loss, it was less than RM1bil for yen-denominated debt,” he said.
  
  Eng, in his report, said the ringgit might not weaken “significantly past the 3.60 per US dollar level” but still faced a strengthening yen.
  
  He told StarBiz yesterday that TNB needed another 6.2 million tonnes of coal. “Year-to-date, the company has acquired 5.2 million tonnes of coal at US$107.70 per tonne,” he added.
  
  TNB had switched to using more coal than gas due to the higher price of gas in the August to November period.
  
  Gas price had jumped to RM14.31 per million British thermal unit (mmBTU) from RM6.40 per mmBTU while coal had risen to US$113.90 per tonne from US$55.30 per tonne in that period.
  
  “There’s no way they can really hedge in terms of coal given the current market conditions. They buy from the spot market,” Eng said.
  
  Although the price of coal had fallen, coal price had proven “to be more sticky on the downtrend than oil prices,” he said in his report.
  
  Eng said in the report that TNB should brace for “more pain for two quarters” as new capacity payments for the Jimah power plant owned by Jimah Energy Ventures Sdn Bhd kicked in amidst poor demand outlook in the first half of 2009.
  
  Maybank Investment Bank Bhd analyst Ong Chee Ting said that “it’s really hard to renegotiate with the independent power producers over the power purchase agreements.”
  
  “These things take time and given the obstacles, they don’t know how to do that,” he said.
  
  Ong said in his report that a base tariff hike was unlikely in the triennial review of tariff rates because of a “heightened political risk” following Barisan Nasional’s failure to retain the Kuala Terengganu parliamentary seat.

Buffett's Chat With Tom Brokaw of NBC

Posted on CNBC: http://www.cnbc.com/id/28725856/

A couple in interesting moments.

• TOM BROKAW, NBC NEWS:
  
  BROKAW:
  
  Gordon Gekko said, "Greed is good because it motivates people." Greed good or bad?
  
  BUFFETT:
  
  Well, I-- greed is gonna be present. At-- at-- at-- if-- I would distinguish between greed and ambition. I-- I-- you know, (LAUGHTER) I mean, you know, Henry Ford may have been-- been ambition, or Thomas Edison, or all kinds of people, you know, that-- that they-- there's nothing wrong with wanting something better for yourself than you have today, or wanting something better for your family than you have today.
  
  I mean, it-- it's been part of the American system. And it-- it's led to this-- these wondrous things that have happened. It-- when you start trying to create phony instruments that fool other people so you stick money in your pocket, or-- or-- or leverage yourself to the sky so that, you-- you know, that-- you're vulnerable to the least little-- interruption of-- of financial activity, or economic activity, you know, it-- it's a mistake. But people are gonna be greedy. You better-- you-- you-- you shouldn't design a system that essentially counts on people not being greedy. It's gonna-- it's gonna exist, but you-- you need to temper it in various ways.
  
  
  
  BROKAW:
  
  You were a child in the Great Depression. You witnessed World War II. It was a very difficult time right after World War II, a lot of people forget about that. You've been through these-- cycles of boom and bust. Where does this one fit in your lifetime?
  
  BUFFETT:
  
  Well, this is-- this certainly is nothing like World War II. I mean, you know, the-- with the country threatened. And-- and it's not like the Great Depression. But it's a severe economic-- you know, this is-- this is number one-- the-- since World War II.
  
  But, in the end, you know, it-- since 1776 it's never paid to bet against America. I mean, you know, (LAUGHTER) I mean we come through these things. There was a song during World War II that-- that said, "We did it before, and we can do it again." Maybe you can remember-- you know, I can remember it. And-- and the truth is we've done it before and we'll do it again. We-- we come through things. But it's not-- it's not always a smooth ride.
  
  

Tenaga's Forex Losses

Posted last night: Tenaga may post RM1b quarterly loss

Received the following set of comments..

Jasonred79 said...
Let's look at it "profit from BUSINESS ACTIVITIES" perspective.

In 2007, Tenaga made RM1.5b ... partially due to a 242million gain on forex. (so that's 1.25 billion profit from biz)

In 2008, Tenaga lost 944 million, due to 1.44b loss on forex. Discounting that, they only made RM 500 million profit based on their business.

At the end of August 2008, Tenaga's US dollar-denominated debt amounted to 6.29 billion ringgit, while its Japanese yen-denominated debt was 4.5 billion ringgit.

There you go... basically, Tenaga's balance sheet get's whacked pretty badly whenever the RM slides against the USD and Yen. ... actually, Tenaga must be morons for borrowing in currencies which tend to strengthen... imagine if tenaga had borrowed in Zimbabwe money! Hahaha! By now, their debt would have shrunk to peanuts!

...

Personally, I don't like to look too much into forex gains and losses, since forex gain and loss can reverse anytime. Furthermore, from the perspective of an international investor, Even though tenaga's debt in RM terms has ballooned, it's debt in USD terms is pretty constant.

However, even discounting forex, it looks like profit slid from 1250 million to 500 million. How Tenaga managed that, considering the 27% jump in revenue, I DON'T KNOW.

=>>>>
Jason,

Let me share my flawed one sen view with you.

As mentioned before to you, I believe so much that one should always remember that what one's owe the bankers currently is based at current rates and if the borrowing is made on foreign currencies, what one OWES is based on the current exchange rates.

Think about it.

That's how I always view it.

Forex losses and gains are part of the existing economics of the particular business that indulges in foreign denominated fundings. And what one OWES is based on what the current forex rates.

For Tenaga case, one could argue last time, the positives about borrowing in Yen for it was a rather 'cheap' currency for one fundings needs. No one expected Yen to soar against the ringgit but it has.

Tenaga a fundamental stock?

Perhaps a fundamentally flawed stock if you ask me.

Of course I am always flawed.

These Bank Bailouts Just Won't Work!

So says Dr. Marc Faber.

• "The financial crisis has occurred because of government interventions," Faber told "Squawk Box Europe."
  
  "Specifically central banks, or specifically the US Fed, by keeping interest rates artificially low for too long, they created a huge leverage in the system. So the people who created the problem now are in charge to bail out the system and that's why I am very skeptical that it would work," he added.
  
  The governments' efforts to pour money into certain businesses to keep them afloat while letting others fail were arbitrary and increased volatility, he said.
  
  "I think it was good that Lehman went bankrupt but I can't see any reason why AIG
  
  has been supported. Either you bail out everybody or nobody," said Faber.
  
  "The contractions actually serve to build for the future growth, because the weak competitors are eliminated. If you support the weak competitors you essentially penalize the strong competitors and therefore I am very much against these bailout packages."
  
  There is a chance that the second half of this year may be worse than the first half, but markets, which were oversold in November last year, may go a little higher, according to Faber.

And Faber isn't all that bearish against the US dollar!

• "I have shares in Asia, mining stock, exploration companies, physical gold," Faber said.
  
  "As far as currencies are concerned, I think the dollar is a disastrous currency but the others are even worse. I am leaning more towards the view that the dollar could strengthen even more."

Source: http://www.cnbc.com/id/28730368

Aseambanker's Warning On Tenaga And Tenaga Post Massive Losses!

Published this morning: Tenaga may post RM1b quarterly loss

• Maybank Investment Bank reiterates 'hold' rating on the stock
  
  TENAGA Nasional Bhd, Malaysia’s state-run power utility, may post a quarterly loss of RM1 billion (US$280 million) after a weaker ringgit increased foreign debt costs, Maybank Investment Bank Bhd said.
  
  The Kuala Lumpur-based electricity provider, announcing results for the three months ended November 30 today, may incur foreign-exchange losses of about RM1.4 billion for the quarter, Ong Chee Ting, an analyst at Maybank, said in a report. Tenaga made RM1.51 billion in profit a year earlier.
  
  “While these losses are not immediate cash outflows to Tenaga, their enormity is likely to spook investors,” Ong said. Slowing demand for power in Malaysia in the global recession and higher average coal costs also weighed on earnings, he said.
  
  Debt denominated in foreign currencies, mostly the US dollar and the Japanese yen, accounted for almost half of Tenaga’s borrowings of 22.7 billion ringgit last fiscal year. The ringgit has lost 9.2 per cent against the dollar in the past six months and declined 23 per cent against the yen.
  
  Maybank cut its earnings forecasts for Tenaga for the years ending August 2010 and 2011 by between 22 per cent and 24 per cent. Ong reiterated his “hold” rating on the stock.
  
  At midday, Tenaga shares Tenaga was flat at RM6. - Bloomberg

Firstly Tenaga closed the day up 5 sen at 6.05!

And Tenaga just released their earnings.

It was NOT pretty!

And this what's said in the earnings notes.

As a consumer, frankly I am appalled by Tenaga's earnings.

I look at my bills and I see myself paying more than 25% increase on my monthly electrical bills. And despite consumers paying more (Tenaga's sales revenue increased by 27% compared to the corresponding quarter last financial fiscal year), this whopping losses of 944 million is simply beyond my comprehension.

Why? How? What?

Sigh!

What Is Cooking With Them Oil Prices?

Published on the Financial Times: Signs of shift away from WTI

• Signs of shift away from WTI
  By Javier Blas in London
  January 18 2009
  
  Oil traders are quietly pricing some of their deals away from the West Texas Intermediate contract, traditionally the world’s most important oil benchmark, as it is being distorted by record inventories at its landlocked delivery point.
  
  The move is a setback for the benchmark that since the launch of the Nymex WTI futures in the early 1980s has dominated physical and financial oil markets.
  
  The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, has depressed its value not only against other global benchmarks, such as Brent, but also against other domestic US crudes.
  
  Julius Walker, an oil market analyst at the International Energy Agency in Paris, said there was “anecdotal evidence” of traders moving away from WTI and “doing deals based on other US oil benchmarks”.
  
  The IEA monthly report said Brent was now “arguably more reflective of global oil market sentiment”. However, Bob Levin, managing director of market research at Nymex said that the WTI contract was performing “transparently”, reflecting a “loss in oil demand and sharply rising inventories”.
  
  “WTI is better reflecting global oil fundamentals than Brent,” Mr Levin said. “The oil industry has not abandoned the WTI contract and it has confidence in it.”
  
  Nevertheless, traders in London, New York and Houston confirmed a small number of transactions away from WTI after its price plunged last week to record discounts against other global and domestic benchmarks. The traders cautioned that the move could reverse if the WTI situation normalised. Lawrence Eagles, at JPMorgan, said any move away from WTI would face “strong resistance as none of the other US benchmarks have the price transparency of an exchange market”.
  
  Highlighting the price disconnection with the global market, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, last week plunged to an all-time discount of $11.73. The detachment hit the US market too, where Light Louisiana Sweet, jumped to a $9.50 premium, the highest in 18 years.
  
  Brent ended last week at $46.18 a barrel, well above WTI at $36.
  
  Walter Lukken, outgoing chairman of the Commodities Futures Trading Commission, told the FT the regulator was following “very closely” the WTI disconnection.
  
  This is not the first time WTI has diverged from other benchmarks, but the discrepancy is far more severe this time.

Well what's cooking with them oil prices?

The Great US Bailout

Wanna try?

http://www.thebailoutgame.us/

It's really great fun and the intro is simply superb! LOL!

Charts Of Parkson

Here is the chart of Parkson Group.

Here is the chart of Parkson Holdings.


And here is the comparison chart drawn.



I wonder if it's just be but this is clearly not looking good for either stocks, yes?

And the following was posted recently.

• Parkson Retail credit outlook cut to 'stable'
  
  Published: 2009/01/09
  
  SHANGHAI: Parkson Retail Group Ltd, a Beijing-based department store chain, had its credit outlook reduced to "stable" from "positive" by Standard & Poor's Ratings Services after China sales slowed. The retailer's stock fell for a second day yesterday.
  
  The revision follows Parkson's announcement on January 6 that fourth-quarter sales growth in Chinese stores open at least 12 months cooled to between 7 and 8 per cent, S&P said. This compared with a 12 per cent gain for the year as a whole.
  
  "This would be much weaker growth than historical levels, and we expect the weak sales trend to persist in 2009," the ratings company said in a statement yesterday. "We expect Parkson's full-year 2008 results to be below our threshold for a rating upgrade."
  
  The retailer blamed a "deterioration of the trading environment" in China's export-driven coastal region as recessions around the globe cut demand for Chinese products, prompting job cuts and factory closures. Parkson, which is controlled by Malaysia's Lion Group, said in November that it planned "aggressive" promotions to encourage consumer spending along the coast.
  
  S&P also affirmed its BB long-term corporate credit rating on Parkson, according to its statement.
  
  The ratings company expects the retailer to show "satisfactory profit" for 2008 because of the growth potential of the retail sector in the country and Parkson's "favorable concessionaire model, its good operating margins and improving market position and geographic diversification."
  
  "These strengths are offset by ongoing execution risk associated with Parkson's rapid expansion plan and the fact that it is operating in a fragmented and increasingly competitive market," S&P added.
  
  Retail sales in China should have stayed at a "healthy" 21 per cent for 2008 while growth is likely to slow down in 2009, it said. The government's drive to boost domestic consumption will make the retail sector one of the more defensive in the country, it added.
  
  Parkson shares extended Wednesday's 16 per cent decline, closing 5 per cent lower at HK$7.18 (HK$100 = RM45.5) in Hong Kong yesterday. - Bloomberg

Templeton's Mark Mobius Is Bullish On Emerging Markets

Posted on Star Business, Templeton to invest more in emerging markets

• Monday January 19, 2009
  Templeton to invest more in emerging markets
  By FINTAN NG
  
  It intends to buy shares in consumer and commodities firms
  
  TEMPLETON Asset Management Ltd plans to acquire more shares in consumer and commodities companies in emerging markets due to their attractive valuations and the recovery these markets will make this year.
  
  The asset manager, which is part of San Mateo, California-based Franklin Templeton Investments, manages US$26bil in emerging market stocks.
  
  Templeton Asset Management executive chairman Mark Mobius said the build-up of foreign reserves and increase in money supply, which was “quite dramatic”, would drive the recovery of bourses in emerging markets.
  
  “Banks have been hoarding, inflation is down, interest rates are down … this is unsustainable and will eventually lead to more lending, which means more business actitivities,” he said, adding that stock markets would continue to be volatile in the short term.
  
  Mobius told a media briefing on Saturday that stock markets usually led economies and the economic recovery would only happen next year.
  
  He said China has the wherewithal for economic growth and Brazil, India, South Africa and Turkey were good investment opportunities.
  
  On Malaysia, Mobius said the local stock market tended to be steady but felt that stocks here were not as cheap compared to the region. “We don’t have any plans to increase our holdings but we’re constantly on the lookout,” he said.
  
  Mobius said the focus on consumer stocks was due to the rising spending of consumers in China and India driven by rising per capita income. “Basic consumer products will continue to be sold and companies will continue to be profitable,” he said.
  
  Mobius said commodity prices had “gone too far in both directions” and were too high last year and too low this year. For commodity stocks, he preferred mining-based companies such as those involved in the production of nickel, palladium, platinum and gold.
  
  “We like the food-producing companies to some extent but it is difficult to get a pure exposure to it, even Sime Darby is diversified,” Mobius said.
  
  He said the recent spate of accounting scandals like the one plaguing Satyam Computer Services Ltd would not deter him from investing in India. Templeton exited Satyam without making a loss after its analysts warned it of the company’s suspicious business activities.
  
  “You can’t throw the baby out with the bathwater, there are other companies that are profitable and with good management,” Mobius said.
  
  He said these scandals, including the one involving Bernard Madoff, meant that investors had to be cautious, vigilant and diversified.
  
  “Corporate governance will not be solved by government oversight alone, but we must not be so negative that we don’t invest,” Mobius said.
  
  

Market Performance During Presidential Inaugurations

For stats lovers: Presidential Inaugurations And Market Performance

The table posted in that blog posting is highly interesting!

Cheers

So What Is £243 Million?

A £243 Million deal from Manchester City to sign Milan star Kaka is indeed stunning. (see sports news here )



However, it now appears that this £243 Million deal is peanuts given the events that happened yesterday

Yesterday, Barclays lost a whopping £27 Billion off its share value!

Published on TimesOnline.

• Barclays lost a quarter of its stock market value last night, just hours after the ban on the short-selling of banking shares was lifted.
  
  Shares of Britain’s third-largest bank plunged 32.4p to a ten-year low of 98p, wiping £2.71 billion from its value, amid speculation that Barclays will have to open its books to City watchdogs if it is to be allowed to benefit from the Government’s latest rescue package for the banking sector.
  
  This is widely expected to be presented early next week and the Government will promise capital injections if necessary. The Treasury will also hold out the prospect of creating a “bad bank”, to take the toxic assets off the balance sheets of the big lenders. These would be ring-fenced and partly guaranteed by the Government. The move would come alongside the creation of a “good bank”, possibly Northern Rock, to stimulate lending.
  
  Because Barclays previously snubbed financial support from the Treasury when Britain’s banks were recapitalised in the autumn, sources close to the negotiations believe that it will be excluded from further rescue packages – unless it opens its books to the Financial Services Authority.
  
  There was also speculation last night that Barclays faces further write-downs in the value of collaterised debt obligations (CDOs) – specialist financial instruments to which the bank’s investment banking arm, BarCap, is heavily exposed.
  
  Moody’s, the credit rating agency, downgraded the rating on a particular form of CDOs widely held by BarCap on Thursday and there have been rumours – denied by both parties – that last week’s resignation of Sir Nigel Rudd, the Barclays deputy chairman, was due partly to differences with the chief executive, John Varley, over how such instruments should be valued in the bank’s books.
  
  A downgrade in the creditworthi-ness of some credit card companies – to which Barclays, as the leading card issuer, is exposed – was also said to have been behind the decline. Analysts at Royal Bank of Scotland’s broking arm suggested that Barclays needed an extra £12 billion of capital owing to a risk of rising impairment losses in its loan book later this year.
  
  Barclays raised £7 billion in October and November, mainly in Qatar and Abu Dhabi, but came under attack when it emerged that it was paying more for this capital than RBS, Lloyds TSB and HBOS were for the £37 billion they received from Treasury at the same time. It is feared that, should Barclays have to raise new capital, it will be on far more onerous terms.
  
  Barclays insisted last night that, when publishing its annual results next month, it would reveal a solid capital position. It added: “The Board of Barclays expects to report profit before tax well ahead of the £5.3 billion consensus estimate of analysts.”
  
  City sources suggested that Barclays would make an ideal target for short-selling – selling shares of a company in the hope of profiting from a later fall in the price – after the lifting of the FSA ban imposed by the collapse of Lehman Brothers. One said: “Barclays is the obvious candidate. HSBC is just too big to short while Lloyds TSB, HBOS and Royal Bank of Scotland are now part-owned by the Government.”
  
  The Treasury is preparing a package to stimulate bank lending that is likely to extend the assets that will qualify for government guarantees.Shares of other leading banks fell sharply, with RBS dropping 5.20p to 34.70p and Lloyds TSB 5.1p to 98.4p.

So what has this got to do with City's stunning £243 Million bid for Kaka?

• MANCHESTER City owner Sheikh Mansour lost £440MILLION yesterday — nearly DOUBLE what he is set to spend on Brazilian soccer ace Kaka.
  
  The Arab tycoon, who hopes to sign AC Milan’s Kaka in a £243million deal, was stunned as Barclays shares crashed by 25 per cent — wiping £27BILLION off the bank’s market value.
  
  The Sheikh, 38, had plunged £3.5billion of his estimated £33billion fortune into Barclays last October, giving him a 16.3 per cent stake.
  
  But a banking insider said last night: “It’s fair to say Sheikh Mansour had a day from hell.
  
  “Talk about being in the Kaka. He must have watched the news with his head in his hands.
  
  “You wake up preparing to make history with the biggest ever offer to a footballer. Hours later, you’re down £440million.”
  
  A £440million loss is equivalent to the gross domestic product of African nation Gambia.
  
  Abu Dhabi royal Mansour bought Man City, managed by Mark Hughes, last September — raising hopes of an influx of star players.
  
  The Sun revealed yesterday that he hopes to take Kaka, 26, to the club by splashing £108million on a transfer, another £108million on the attacker’s wages and £27million in fees.
  
  He bought into Barclays when it raised £7billion from investors rather than lose independence in a British government bail-out. His stake is now worth £1.3billion.
  
  Barclays insisted last night it was not in any financial difficulty.

And of course Sir Alex Ferguson and the rest of the football community is simply shocked!.

• Sir Alex Ferguson admits he is "shocked and surprised" by Manchester City's stunning £108million bid for Kaka.
  
  Ferguson has never been afraid to spend big money on key players.
  
  The arrivals of Juan Sebastian Veron and Rio Ferdinand to Old Trafford broke previous British transfer records and only this summer he splashed out £30.75million on Dimitar Berbatov.
  
  But even the Manchester United boss has been taken aback by City's offer.
  
  It is not the team doing the buying that has caught him off guard, or even the fact AC Milan appear willing to sell.
  
  For Ferguson, it is the sheer enormity of the sum, well over double the most any club has paid for a player in the history of the game - Zinedine Zidane's move from Juventus to Real Madrid for £46million in 2001 - that has left him gob-smacked.
  
  "I find it hard to get my head round to be honest," he said. "It is amazing.
  
  "Football is football. From time to time you get shocks and surprises. This is surprising everyone."
  
  Ferguson is not convinced the staggering deal would have a knock-on effect throughout the game if it goes through.
  
  United midfielder Michael Carrick, who left Tottenham for a not inconsiderable £18.6million in 2006, has no view on whether lavishing such sums are morally right or wrong.
  
  However, it is clearly a move that has got the United dressing room buzzing, with the England midfielder left as stunned as his manager.
  
  "That amount of money being bandied about is a bit of a shock really," he conceded.
  
  "When Manchester City were taken over we were told they had a lot of money to spend and big names were being talked about.
  
  "But for it to be so much over the top is pretty mad really."
  
  While AC Milan seem happy to do business, City owner Sheikh Mansour knows there is a lot of negotiating to do with Kaka and his advisers before the Brazilian commits his future to Eastlands.
  
  A key meeting between the Blues and Kaka's father has been pencilled in for next week, after which the picture will become clearer.
  
  Carrick is not certain Kaka will eventually sign. But the former West Ham star would be delighted to see the former world footballer of the year in the Premier League, even if it was in the shirt of United's local rivals.
  
  "We want the best players in this league and he is definitely one of them," said Carrick.
  
  "It will be interesting to see what happens."
  
  Wigan manager Steve Bruce has pointed to the City offer for Kaka as another warning that football is in danger of losing touch with the man in the street.
  
  With City said to be prepared to offer AC Milan striker Kaka £500,000 a week and ticket prices continuing to rise while the economy heads in the other direction, Bruce fears for the future of the national game.
  
  Bruce, who takes his side to Eastlands on Saturday, is also worried the move could drive up player costs to unsustainable levels.
  
  He said: "The beauty of our game is that it means more to the average man in the street than anybody. I know the average man in the street now finds it very difficult to find £40-45 to go and watch a game.
  
  "When a big player is out there it does inflate your prices. You do worry about it and wonder if things could go belly up."
  
  Bruce added: "We are all staggered by the news. It is quite unbelievable when you are talking about a credit crunch throughout the world. But it just shows you what this Premier League is all about.
  
  "I think this year people thought the situation with finances would be a little bit more sensible.
  
  "But then along come the owners of Manchester City who want to have the best players in world at their club."
  
  However, Blackburn manager Sam Allardyce, who last week rejected a £16million bid from City for striker Roque Santa Cruz, believes the massive investment City are prepared to make could pay off if they break into the Premier League's top four.
  
  "There is only Manchester City that can spend it (£100million on one player)," he said.
  
  "Manchester United can't, Liverpool can't, Chelsea can't now by the looks of it.
  
  "The last few years it was (Chelsea's billionaire owner) Roman Abramovich and now we have got another one.
  
  "If there is going to be more to follow then only time will tell if spending that sort of money is the right thing to do.
  
  "If Manchester City end up challenging the big four then from their point of view it will be."
  
  Chelsea manager Luiz Felipe Scolari, who worked with Kaka during his time as coach of Brazil, offered no opinion on the size of the fee but insisted City would need more than money to convince him to sign.
  
  "Manchester City have money. Kaka is one of the best in the world on the pitch and off it. He is a fantastic player and they have money to spend. How much is it normal to pay? I don't know. He is a fantastic player," Scolari said.
  
  "I would not be surprised if he went to Manchester City. This is football. He is a professional player but maybe they offer to him not only money but an idea for the future. I know Kaka very well, money is not his problem."
  
  Fulham manager Roy Hodgson, former manager of Milan's city rivals Inter, said: "You're in the realms of lottery money and that's the way it is. If a club has £100million to spend and think that buying one player is the best way to improve their team then that's their business.
  
  "Richer clubs have always determined the market prices. At the moment £30million is the figure for a very good player to move from one Premiership club to another. In a few years that figure might be £100million."
  
  Portsmouth manager Tony Adams feels the potential deal will not help his club.
  
  He said: "It doesn't help us, that's for sure. It is not reality for us or most of the clubs up and down the country. It is a different world, a different planet. But that also brings another amount of pressure and stress having to deal with that.
  
  "I dropped my son off at school this morning and he loves playing those games - what if I had all this money, what would I do? - and the supporters out there do as well. It is certainly not my reality. The majority of the clubs are reducing their wages and reducing their expenditures."
  
  Spurs manager Harry Redknapp feels Manchester City fans will be delighted if the Brazil international moves to Eastlands.
  
  He said: "If you're a Man City supporter, I'm sure you're delighted to have someone like Kaka come to the club. It's an awful lot of money but if the owner wants to pay it, it's up to him. I'm sure Mark Hughes will be delighted to have a player like that at his football club."
  
  West Ham manager Gianfranco Zola does not think the move will go through.
  
  "It is a lot of money. It means they can afford it. It is difficult to judge them. They are willing to pay, so what can I say.
  
  "The whole transfer window is nonsense. It is not about dealing with players you have got and getting the best out of them. If I have lots of money then I can solve my problems by buying lots of players. I would cancel the window and push managers to work with what they have got.
  
  "It is a difficult thing for him (Kaka). I would not want to be in his place. He loves Milan and I think he will stay there."
  
  

Can China Adjust To The Lack Of Spending From US?

Michael Pettis, finance professor at Peking University, wrote an interesting piece on Financial Times. How will China deal with the US adjustment?

• January 9, 2009by FT
  By Michael Pettis
  
  The post-1997 global balance is breaking down, and the world is lurching drunkenly to find a stable new balance. Until now, Chinese overproduction has balanced US verconsumption, leading to China’s massive trade surplus and capital account deficit. Inevitably, however, a reduction in US overconsumption, a necessary consequence of the financial crisis, must force a corresponding reduction in overproduction elsewhere, and China, like it or not, will have to bear the brunt of the adjustment. The US and Europe must design their fiscal and monetary policies in part to ease China’s adjustment, which will otherwise be extremely difficult.
  
  For most of the past 60 years US household savings rates have varied between 6 per cent and 10 per cent of gross domestic product. In the early 1990s the savings rate began declining, virtually collapsing after 1997 to well under 2 per cent of GDP. If American households rebuild balance sheets by raising household savings rates only to the historical mid-point, their savings must rise by roughly 6 per cent of US GDP.
  
  Something must happen to equilibrate the corresponding decline in US household consumption. Either other US consumption, i.e. government spending, or foreign consumption must expand by that amount. To the extent that neither happens, global overproduction, which consists mainly of Chinese overproduction, must decline by that amount. This is just a way of saying that if net American consumption declines, either consumption must rise somewhere else, or production must fall.
  
  In the best possible world Asian consumption would rise by exactly the same amount as US consumption drops, and we would quickly reach a new stable balance.
  
  Given that the US economy is about 3.3 times the size of China’s, and China’s trade surplus is roughly equal to one-half to two-thirds of the US trade deficit, the increase in Chinese demand needed to equilibrate the increase in US household savings is equal to roughly 10-15 per cent of China’s GDP. With consumption accounting for less than 50 per cent of China’s income, Chinese consumption will have to rise, in other words, by more than one-quarter. This is clearly unlikely.
  
  The way Chinese production adjusts to the adjustment in US consumption will be the most important story of 2009. This is not the first time the world has required such a massive balance of payments adjustment. In the 1920s the US played the role that China plays today.
  
  The US economy had been plagued in the 1920s with overcapacity and, as a consequence, ran large trade surpluses equal to 0.4 per cent or more of global GDP (China, with an economy one-sixth the relative size, runs trade surpluses of roughly the same magnitude).
  
  The 1929 crash in effect cut off funding for countries with trade deficits, eliminating foreign ability to absorb US overcapacity, and so required a countervailing US adjustment. Either the US had to increase domestic consumption, or it had to cut back domestic production.
  
  There was unfortunately more to the crisis than simply the drop in foreign demand. With the collapse of parts of the domestic US banking system, domestic private consumption also fell. The slack in demand should have been taken up by US fiscal expansion, but instead of expanding aggressively, as Keynes demanded, President Roosevelt expanded cautiously. When the credit crunch came and the world was awash in American-made goods, it was unreasonable, Keynes argued, to expect the rest of the world to continue purchasing US goods.
  
  Since US production exceeded US consumption, the need for demand creation, according to Keynes, most logically resided in the US. But the US had other ideas. Rising unemployment pressures in the US prompted US senators to respond in 1930 with the notorious Smoot-Hawley Tariff Act.
  
  Washington tried to create additional demand for domestic producers by diverting demand for foreign goods and so force the brunt of the adjustment onto trading partners. Not surprisingly, the trading partners retaliated, and international trade declined by nearly 70 per cent in three years.
  
  This shifted the brunt of the adjustment back onto the US. Without global trade each country had to adjust domestic supply to domestic demand, but in an overcapacity crisis trade-surplus countries are more vulnerable to trade contraction than trade-deficit countries. A contraction of trade implies an expansion of production in the latter and a contraction in the former, and in the 1930s it is noteworthy that trade-surplus countries suffered more deeply from the crisis than did trade-deficit countries once trade barriers were imposed.
  
  China today faces a similar problem. Today it is China who is exporting overcapacity and it is the US who is consuming too much. With the collapse of bank intermediation US households and businesses are cutting consumption, but like in the 1930s, if there is a drop in global demand, the trade-surplus countries will need to adjust more than the trade deficit countries.
  
  Because of the importance of the export sector to domestic growth and employment, and because of the strong positive correlation between exports and domestic investment in countries such as China, if exports drop quickly there may be significant political pressure for these countries to engineer moves to expand exports.
  
  Might China and other Asian countries repeat the US mistake? China already seems to be in the process of engineering its own efforts to defend its ability to export over-capacity. Although there has been an attempt to boost domestic spending, most analysts argue that this has been too feeble to matter much. But China has also tried to protect and strengthen its export sector by lowering export taxes, constraining wage rises, and reducing interest costs, which lowers the financing cost for producers while increasing household savings rates.
  
  While the impetus behind these policies is understandable, this strategy cannot work for long. The world suffers from overcapacity, and as net US demand declines, overcapacity will only rise. The proper place for new demand to originate is, as in the 1930s, in trade-surplus countries. They should be expanding demand, not expanding supply. If they attempt to export their way out of a slowdown, there will almost certainly be a trade backlash, as there was in the 1930s, in which case the full force of the adjustment will be borne by the trade-surplus countries, again as in the 1930s.

On our local Star Business, P.Gunasegaram writes on tthe same issue: Towards Asian consumption and Western saving

• A couple of serious adjustments need to take place before the global crisis can be sorted out.
  
  THE key to a solution of the latest economic and financial problems facing the world is a double-pronged change – a fall in the currencies of the troubled and traumatised Western world and for Asia to consume more and take over the bulk of spending. Let’s put this in historical context.
  
  The 1997-98 currency crisis started with the fall of the Thai baht. Thailand was borrowing short-term funds internationally and using this to finance long-term projects. Hedge funds geared up to make money from interest-rate differentials, the implicit assumption being that the baht will not fall. But it fell.
  
  The so-called currency crisis spread and South Korea and Indonesia, both of whom borrowed heavily overseas, were similarly affected with their currencies under attack.
  
  The International Monetary Fund or IMF, in return for financial assistance, prescribed the same stock solutions for all – tighten the belt, reduce spending, raise interest rates, let companies go under. In other words – let there be blood on the streets. Those words were actually used.
  
  There was much pain and suffering. With currencies on a roller coaster, interest rates had to be really high to keep funds in – and even that did not work. Imagine – the rupiah swung from 2,000 to 20,000 to the US dollar. Interest rates skyrocketed to well into the double digits.
  
  Malaysia too suffered but it did not need IMF help because it had enough reserves and its companies were not overly exposed to foreign borrowings. But it did follow IMF prescriptions – initially.
  
  The Government reigned spending, or tried to, by 20%, banks restricted credit – you could not get a loan on the security of your own fixed deposit - and interest rates were raised. But the fund managers could not be appeased. The currency came under attack and the stock market as well.
  
  It was very easy for speculators to mount a pincer attack – short-sell the market and the currency by gearing up. Interest rates will be raised to defend the currency, the markets falls, confidence erodes and eventually the currency too will collapse generating huge profits for the hedge funds.
  
  This continued until capital controls were imposed in 1998 in Malaysia which did two important things. One, the Government did not need to use up foreign exchange reserves to defend the currency, and two, it regained control of monetary policy – it could ease credit and bring interest rates down.
  
  Malaysia reversed its economic policies and flooded the system with liquidity, saved its corporations, restructured the loans and recapitalised the banking system.
  
  There was quick recovery in balance sheet terms because the sharply depreciated currencies produced huge trade surpluses in the affected countries. This ensured that the balance of payments (the trade in goods plus the trade in services plus the flow of funds) was in considerable surplus. And the process of accumulation of reserves continued again.
  
  But despite the quick recovery in balance sheet terms, there was a huge lack of confidence, prevailing until today which has snuffed off higher growth in the tiger economies such as Malaysia, Indonesia, Thailand, South Korea, Taiwan and Singapore. The countries are content with much lower growth and the higher growth countries were the likes of China and India – countries insulated from the currency crisis partly because they had rigid capital controls.
  
  Two things were responsible for the 1997/98 financial crisis – one was dubious business practices – basically funding long-term projects, many questionable, with short-term funds, and especially foreign funds. Two, thing were exacerbated by speculators who took the opportunity to whack currencies down, ignoring fundamentals. This is where capital controls helped for Malaysia.
  
  The over-riding lessons were one, that during times of crisis you flood the system with liquidity, not remove it. Two, you save companies, not destroy them, especially the banks. Three, governments must spend to mitigate reduced spending by the private sector. And, four, you do what you can to keep confidence up.
  
  The current crisis is also a problem of excess funds. Asian reserves funnelled into the US resulted in excess money looking for a home and bankers trying to innovate to get more people to borrow. Essentially, bankers invented subprime mortgages which resulted in the subsequent subprime crisis when house prices in the US collapsed. Similar crises erupted throughout the developed world.
  
  When loans turned sour, banks had their capital eroded and they had to be recapitalised. Not just that, governments had to guarantee some of the loans of the banks which in effect saves bank shareholders too. Meantime other companies considered too large too fail – GM etc – were targeted for government help.
  
  All of these were counter to what the IMF advised the Asian tigers to do post the 1997 crisis. But still they are the right measures to put the world economy back on a healthy footing again – the government has to intervene in times of trouble – without too much discomfort to the public at large. A point to remember is that these developed economies are in far worse shape than the Asian tiger economies were in 1997/98 – venerable names are in trouble, big trouble. The US balance sheet is going to get far worse before it gets better because of huge deficit spending – as borrowings increase, and money is printed, inflation in the US will go up and Asia will realise the folly of investing in the US.
  
  There needs to be an adjustment process, somewhat similar to what Asian tiger economies went through to get the balance sheet back in order. At some point, the US dollar would have to depreciate significantly.
  
  That would mean the US would become more export competitive and the Asian countries may have to become consumers to save the world economy just as the US economy has for some time now. The adjustment process means that Asia will have to spend and the US save and produce. How long this will take is anybody’s guess.
  
  For us in Malaysia, the biggest danger to the economy is that we collectively will spend too little. Our banks are not in trouble, most of our companies are still intact and we should ensure that we put enough money in the pockets of people so that they spend. Cutting wages and bonuses will be a mistake just as cutting jobs unnecessarily will be too.
  
  Export earnings are going down but we should not worry too much because imports are coming down, thereby maintaining healthy trade surpluses. A sharp one-off outflow of short-term funds reflecting repatriation of funds resulted in the balance of payments declining but that won’t be the trend. Our balance sheet will continue to be strong, enabling us to spend with little problems for a couple of years.
  
  We should think of other ways to spend instead of through the government. Australia gave money, some A$20 billion to its poor. We should see if something like that is feasible because the government is a very poor and inefficient spender of money with plenty of leakage due to inflated project values.
  
  Our banks must not be afraid to lend. Businesses have need for cash now. Export manufacturers are already badly affected and they need some cash to tide them over the difficult period until demand recovers again.
  
  Overall the greatest danger for Malaysia, relatively insulated this time from the global crisis, is that of tightening the belt too much and pushing ourselves into recession. But even if we enter a recession, it should not be prolonged or severe.
  
  The time has come for Asian countries to spend more and to invest more of their money in the region to foster growth here. And that process will be aided at some time by the declining US dollar as well as the currencies of the developed world as part of the adjustment process towards Asian consumption and Western saving.
  
  There is still growth in the world economy (China will still grow by 8% this year by most estimates) and we should look at ways we can plug into that growth.
  
  

Banking Loans Is Not Increasing, It Is Decreasing!

I like Bob Pisani short notes from the markets. On today's he notes on the banking sector. Pain For Banks On Both Sides Of The Pond

• I've been asked repeatedly what is going on in U.K. banks, with double digit declines in Royal Bank of Scotland, Barclays, and single digit declines in Lloyds.
  
  The answer is, shareholders in those companies have the same fears that shareholders of large banks here do: massive dilution and further significant write-downs.
  
  The UK Prime Minister has indicated the government would be announcing new measures to "resume the normal function of lending" to the private sector.
  
  Read: More capital injections are coming into U.K. banks, in the hope they will use the money to do more lending.
  
  Why? The U.K. government, like the U.S. government, is worried that without more intervention bank lending will continue to shrink.
  
  But here in the U.S., there is growing debate about the limits of government intervention. The reason banks are not lending is not because they don't want to, it's because:
  
  1) Deteriorating credit quality is a strong motivation to limit new lending growth, and
  
  2) Banks need more deposits so they can lend more (i.e. people need to save more)
  
  And that's just the supply side. On the demand side, loan demand is not INCREASING, it is DECREASING, both here and in the U.K.
  
  That is not a bad thing. Corporations and households have too much debt already and need to deleverage.
  
  The bottom line: government is not going to create an artificial demand by creating a false supply. Let us start by building up capital and increasing savings.
  
  And to everyone--Sheila Bair on down--who angrily say to the banks, "What did you do with all the TARP money?," the correct answer is, "We used it to survive."
  
  

Obama Shows Where Is His Moola!

Great article posted on Wall Streets Journal. Stimulus Package Unveiled

• $825 Billion Plan Includes Business Tax Breaks; Senate Releases Cash for Bank Rescues
  
  By NAFTALI BENDAVID, ELIZABETH WILLIAMSON and SUDEEP REDDY
  
  WASHINGTON -- House Democrats Thursday rolled out the details of an $825 billion economic stimulus package to combat what they called "a crisis not seen since the Great Depression," but its immediate economic impact is unclear and the plan faces hurdles before becoming law.
  
  Details of the two-year package, which calls for $550 billion in new spending and $275 billion in tax relief, will likely change as the bill works its way through Congress. But the document provides the first blueprint of how President-elect Barack Obama and congressional Democrats plan to fight the historic economic downturn, which has already wiped out 2.6 million jobs.
  
  Businesses would get "bonus" depreciation for investing in new plants and equipment. The proposal also allows companies that have losses this year to get refunds for taxes paid as far back as 2003; current tax rules allow losses to be carried back only two years. But companies receiving money from the financial-system bailout program are ineligible for the tax provision, a blow for some of the nation's big banks and troubled auto makers General Motors Corp. and Chrysler LLC.
  
  The stimulus plan was released hours before the Senate backed Mr. Obama on another key measure by approving the Treasury's call for the release of the second half of the $700 billion financial-system rescue package. That program is being replenished as Bank of America Corp. was near an agreement with U.S. officials that would provide it with $15 billion to $20 billion of fresh capital.
  
  The plan would be one of the largest single government expenditures in U.S. history, and would be equivalent to about 3% of gross domestic product over two years. The proposal is $125 billion bigger than the controversial bailout for the financial-services industry. It outweighs in dollar terms all other nations' stimulus plans, though China's $600 billion stimulus is a larger share of its economy.
  
  
  
  Democrats said they emphasized government spending over tax relief because that was the best and fastest way to create jobs. Rep. David Obey (D., Wis.), chairman of the House Appropriations Committee, warned that the package may be insufficient -- and said another spending bill may be needed later this year.
  
  Some of the biggest expenditures will go directly to the states, with $90 billion going to increase the federal share of Medicaid payments and an additional $79 billion to help states avoid cutbacks in education and other services. Separately, $43 billion will go for transportation improvements -- less than many expected, to the frustration of some Democrats.
  
  The plan also includes Mr. Obama's "Making Work Pay" tax credit of $500 per worker and $1,000 for couples.
  
  Economists say the stimulus may be more effective at supporting an ultimate recovery than arresting the current decline. That's because few elements of the package would hit the economy before the second half of the year, with the largest boost coming in late 2009 and into 2010.
  
  By then the U.S. is expected to show slow growth, as a result of other stimulus from the Federal Reserve and Treasury. The unemployment rate, which hit 7.2% in December, is widely expected to hit 8% by the end of the year -- but without any stimulus, some economists fear it could rise into double digits.
  
  Macroeconomic Advisers, a forecasting firm, estimated Thursday that a plan of $775 billion stimulus over two years would boost GDP by 3.2%, reduce the unemployment rate by 1.7 percentage points and raise employment by 3.3 million jobs.
  
  
  
  The Democrats' plan provides incentives for businesses to make capital expenditures. The "bonus" depreciation provision, for example, would provide immediate relief for businesses that invest in new plants and equipment by speeding up depreciation deductions. The package doubles the amount small businesses can immediately write off for capital investments and for purchasing new equipment and includes incentives for businesses to invest in renewable energy.
  
  The transportation and energy projects in the package could have among the slowest impact on the economy, economists said. Even "shovel-ready" projects could be delayed as local and state governments allocate funds, receive bids and award contracts.
  
  The quickest effect, in contrast, could come from tax cuts, particularly if the government reduces payroll taxes immediately to get funds to taxpayers. That could raise spending and get money flowing through the economy quickly, even if some of the funds are likely to be saved rather than spent.
  
  The plan's final shape will depend not only on horse-trading among lawmakers in the House and Senate, but also on the outcome of the lobbying frenzy now under way.
  
  Already some winners and losers are emerging. Among the potential losers are big banks and other businesses that have received government money under the Troubled Asset Relief Program, the $700 billion program designed to bail out the financial-services industry.Companies that took TARP funds are excluded from the provision allowing companies to apply current losses to tax returns filed in the past five years, instead of the current two.
  
  "To exclude TARP recipients is to ignore a large segment of the economy," said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable.
  
  Renewable energy producers also stand to be big winners in the bill, winning an extension of production tax credits that are newly convertible into cash for companies whose losses leave them unable to use the credits.
  
  Power-equipment maker General Electric Co. lobbied for a slew of provisions in the bill and won several, including the production tax credit for renewables, $32 billion for a "smart" U.S. electrical grid for which it manufactures most components; and $300 million for rebates for consumers who buy energy efficient appliances, which GE sells.
  
  Some green advocates didn't fare so well. The Natural Resources Defense Council had compiled a list of more than 80 environmentally friendly infrastructure and transportation projects worth about $405 billion, more than half the bill's total. The group -- a coalition with 1.2 million members -- says it is concerned about the relatively small number of these projects included.
  
  The discord over the transportation piece of the plan is just one of many political obstacles the plan faces, despite the urgent desire of Mr. Obama and congressional Democrats to pass it by mid-February.
  
  Republicans wasted little time pointing out items they said in no way qualified as emergency stimulus spending, such as $650 million to help television viewers convert from analog to digital. House Minority Leader John Boehner (R., Ohio) took a swipe at several items, including $400 million the plan sets aside for "national treasures," including repairs of the walls of the Tidal Basin near the Jefferson Memorial.
  
  "What we're seeing is disappointing," said Mr. Boehner. The package, he said, "appears to be grounded in the flawed notion that we can simply borrow and spend our way back to prosperity."
  
  But the costly initiative also may split Democrats. Many newer Democratic members of Congress hail from conservative areas and are deeply concerned about fiscal discipline.
  
  Recognizing the political pitfalls, Democrats announced an unusual series of spending safeguards for the plan. Governors and mayors will have to personally certify that every expenditure under their jurisdiction is appropriate. Program managers will be listed online so the public can hold them accountable. A special board will monitor the plan's operation.
  
  —Greg Hitt and Christopher Conkey contributed to this article.
  

Prem Wasta Warns Investors To Be Very Wary

Posted on nationalpost.com: Biggest meltdown winner: be very wary

• We can’t tell if we’re at the bottom…We are positive and hopeful for the future but need to watch for signs that stimulus is working," he said in a phone interview. “In a few days, Obama will become president and announce spending of up to US$1 trillion. There will be excitement All of that’s good but the question we all have to ask, and is being asked, is will that amount be sufficient to compensate for the de-leveraging that’s taking place across the economy in the US, Canada and worldwide.”
  
  The crux of the problem
  “De-leveraging” is hoarding, paying down debt, postponing expenditures by banks, individuals and companies which is contributing to the recession and deflation of prices, he explained.
  
  The two historical examples of the serious meltdown the world now faces occurred in the 1930s after the 1929 market crash and Japan’s economic malaise since its 1989 meltdown, not as severe but nonetheless serious.
  
  “In the case of both those data points, the de-leveraging was so severe that even though governments built infrastructure and interest rates went to zero the economy did not around,” he said.
  
  “De-leveraging means that the value of houses, for instance, have to go down so low that people will start to turn around to buy them again. It means that factories with excess capacity will have to close until demand returns and makes surviving factories busy again,” he said. “It might take four or five years.”
  
  Political vigilance is critical
  The danger signs are if any of the three disastrous policies from the 1930s rear their ugly heads again: tariff barriers; higher taxes to balance budgets or higher interest rates to support currencies.
  
  “These are the kind of things you have to look for as signals about the future,” he said. “If Obama starts talking about `Buy American’ that’s less obvious but is a form of protectionism that may impede a turnaround.”
  
  Another unintended consequence that may loom is the exchange rate issues such as the concern about China’s low value or that Greece, Ireland and Spain have been downgraded by S&P because they are not meeting Euro standards. Their debts and spending are too high.
  
  “One of those countries may leave the Euro or be booted out,” he said.
  
  Overall optimism
  Its most recent deal was Northbridge’s privatization and is an example of Fairfax’s financial heft.
  
  “We took Northbridge public in 2003 because we needed the money. We owned it for 23 years and its now Canada’s biggest commercial lines company,” he said. “It went public at 1.2 times’ book value at C$15 a share. In the fourth quarter we had a US$350 million dividend from a U.S. investment so we made an offer to buy out the rest of Northbridge for 1.3 times’ book value and a 30% premium to its average trading price or C$39 a share.”
  
  Northbridge shareholders, 67% of whom acceded to the deal, made 20% compounded annually if they had held the stock since 2003.
  
  Watsa also owns a chunk of CanWest whose stock has fallen dramatically, but remains a loyal, long-term investor.
  
  Fairfax is optimistic overall, has been carefully investing and took the hedges off its portfolios this fall but remains vigilant. And Watsa believes that all investors should do the same.
  
  
  

Stock Rally Really Unsustainable!

I chuckled when I read the Business Times.

Yesterday Business Times posted the following article: Malaysia's stock rally 'unsustainable': Deutsche

Here's the screenshot.

• MALAYSIA's stock rally is “unsustainable” and investors should sell palm oil producers such as IOI Corp, Kuala Lumpur Kepong Bhd and banks including AMMB Holdings Bhd, Deutsche Bank AG said.
  
  “The market is in denial of worsening economic conditions; this is a market far from offering bargains,” Deutsche said in a report today. “The short-term rally” won’t continue beyond March and this is an “excellent opportunity to take profits.”
  
  Malaysia’s Kuala Lumpur Composite Index, which dropped 39 per cent last year, has risen 3.9 per cent this year, the second best performing benchmark measure in Southeast Asia. Official data in Malaysia points toward a weaker-than-anticipated economy while the government’s fiscal deficit may widen and capital outflows continue, Deutsche said.
  
  Malaysia’s industrial production fell the most in four years in November as a global recession and weakening business confidence eroded demand for goods. Loan approvals in the country slumped 44 per cent in November while applications sank 33 per cent, signaling a “worsening economic environment,” the report said.
  
  Malaysia’s fixed income market is bracing for a “considerable” amount of refinancing this year, estimated at RM50 billion, the report said.
  
  “Much of this has yet to be priced in by the market,” it added.
  
  Shares of IOI, Malaysia’s largest palm oil producer, slid 0.5 per cent to RM3.78 as of 10:07 am, headed for its lowest close since December 31. Kuala Lumpur Kepong lost 0.5 per cent to RM9.80. AMMB, the No. 5 lender, declined 0.8 per cent. Deutsche also said investors should sell SP Setia Bhd, the biggest Malaysian property developer, and Parkson Holdings Bhd, an operator of department stores in China.
  
  The Composite Index is trading at a price-to-earnings multiple of 12.7 times 2009 estimated earnings, a 15 per cent premium to the region, Deutsche said in the report.
  
  Malaysia’s central bank in November cut interest rates by a quarter of a percentage point to 3.25 per cent, the first cut since 2003, and the government announced a RM7 billion (US$2 billion) spending plan to revive economic growth. - Bloomberg

Today, the Business Times carried the following article Deutsche: KLCI rally unsustainable

• MALAYSIA'S stock rally is "unsustainable" and investors should sell palm oil producers such as IOI Corp Bhd and Kuala Lumpur Kepong Bhd (KLK) and banks including AMMB Holdings Bhd, Deutsche Bank AG said.
  
  "The market is in denial of worsening economic conditions; this is a market far from offering bargains," Deutsche said in a report yesterday. "The short-term rally" will not continue beyond March and this is an "excellent opportunity to take profits".
  
  The Kuala Lumpur Composite Index (KLCI), which dropped 39 per cent last year, has risen 3.9 per cent this year, the second-best performing benchmark measure in Southeast Asia.
  
  Official data in Malaysia point towards a weaker-than-anticipated economy, while the government's fiscal deficit may widen and capital outflows continue, Deutsche said.
  
  Malaysia's industrial production fell the most in four years last November as a global recession and weakening business confidence eroded demand for goods.
  
  Loan approvals in the country slumped 44 per cent in November while applications sank 33 per cent, signalling a "worsening economic environment", the report said.
  
  Malaysia's fixed-income market is bracing for a "considerable" amount of refinancing this year, estimatd at RM50 billion, the report said.
  
  "Much of this has yet to be priced in by the market," it added.
  
  Shares of IOI, Malaysia's largest palm oil producer, rose 0.5 per cent to RM3.82 yesterday, while KLK fell 1 per cent to RM9.75.
  
  AMMB, the No. 5 lender, fell 0.8 per cent to RM2.51.
  
  Deutsche also said that investors should sell SP Setia Bhd, the biggest Malaysian property developer, and Parkson Holdings Bhd, an operator of department stores in China.
  
  The KLCI is trading at a price-to-earnings multiple of 12.7 times 2009 estimated earnings, a 15 per cent premium to the region, Deutsche noted.
  
  Last November, Bank Negara Malaysia cut interest rates by a quarter of a percentage point to 3.25 per cent, the first cut since 2003, and the government announced a RM7 billion spending plan to revive economic growth. - Bloomberg

Yesterday already published. Today still want to publish?

LOL!

Ok. Business Times, I got your point and Deutsche Bank's point too.

:D

MSWG Also Questions The Need For New LCCT!!

Posted the other day: Does Two LCT Makes Sense? and More On Sime Darby's Labu LCT Project.

Today on Business Times, MSWG also addresses this very same issue! MSWG questions need for new LCCT

• The Minority Shareholder Watchdog Group (MSWG) has questioned the benefits of the new low-cost carrier terminal (LCCT) in Labu, Negri Sembilan, proposed by Sime Darby Bhd and AirAsia Bhd.
  
  "Under the current depressed market conditions and likely difficult times ahead, initiatives led by the private sectors are most welcomed. Nonetheless, all key stakeholders must look at the broader picture to benefit the nation as a whole and the companies specifically," its new chief executive officer Rita Benoy Bushon said in a statement yesterday.
  
  She said while there may be persuasive arguments for Sime Darby and AirAsia to build a new LCCT, the watchdog group believes that an "orderly development and construction of airports and aviation infrastructure in the country must be given the utmost consideration to ensure optimisation of resources in line with the country's National Airport Masterplan".
  
  "(While) it is good to have competition, whether there is room for two LCCTs to be developed is debatable," she added.
  
  Bushon also questioned the funding arrangements and ownership of the proposed LCCT. These are important for shareholders to assess the impact on the companies' gearing and cash flow.
  
  "At MSWG, we believe in the board of directors' duty of making decisions to the best interest of their companies, shareholders and stakeholders.
  
  "We also believe that commercial viability, merits of competition and value-creation should be at the heart of any corporate decision," she added.
  
  MSWG believes that the proposed LCCT will hurt airport operator Malaysia Airports Holdings Bhd as it will cannibalise the existing capacity of KLIA given that AirAsia commands 16 per cent and 49 per cent of the international passenger and domestic passenger movements respectively at the airport.
  
  Last month, the Cabinet gave its consent for Sime Darby and AirAsia to proceed with the proposed LCCT on Sime Darby's 2,800ha in Labu. The two companies are now in preliminary discussions with the state and federal authorities.

Well done Rita!

Take AirAsia involvement posted in the other blog posting: More Capital Borrowing For AirAsia????

Bottom line is AirAsia is already buried way deep in debts but yet it wants to borrow more to involve in the building of the LCCT terminal.

Does it even make sense?

Is this how a business is run?

Is money really that cheap that one can borrow and borrow and borrow??????

Top Glove Gets Top Recommendations!

Published on Star Business: More upside for Top Glove

• KUALA LUMPUR: HwangDBS Vickers Research sees more upside for Top Glove and is maintaining a buy call on the stock with a price target to RM4.70, based on 10 times price to earnings for 2009.
  
  “We like the stock for its visible earnings, good dividend track record and attractive valuation. Top Glove is currently trading at one-year forward PE of 8.9 times and price-to-book of 1.6 times, which are near its historic lows,” it said.
  
  However, the research house said its share price performance, however, could be muted in the short term by the recent rally (up 22% since the start of the year). ( read rest here )

The blue bold highlight says it all for me.

The stock is up a lot - yes a lot and you really need to consider the global market environment, yes?

Have a look. Here's where we are!

Aren't we at a rather lofty high position now?

And amazingly HwangDBS buy price target of rm4.70 is rather lowish!

Yes rather lowish! LOL!

Kid you not.

In today's research reports, I note that OSK has the price target at rm 5.05, CIMB has it at 5.40 and RHB tops it with 5.50.

How?

Would you like to go for the buy high, seeker higher investment strategy?

Me?

I do not rate Top Glove at all. Search for postings on my blog on Top Glove and you would understand why. :D

Good Fundamental Stocks Always Provide Good Returns?

Published on Star Business: Good fundamental stocks always give steady returns

• IN a stock market, there is a small group of investors who seem to have the wrong mindset on long-term investment.
  
  To them, long-term investment via the “buy and hold” strategy cannot give higher returns than short-term trading.
  
  They feel that even though the former may provide higher returns, they need to wait for a long time before they can enjoy the good returns.
  
  According to Peter L. Bernstein in his article The 60/40 Solution: “In investing, tortoises tend to win far more often than hares over the turns of the market cycle ... placing large bets on an unknown future is worse than gambling, because at least in gambling you know the odds.”
  
  Good fundamental stocks always give good and steady returns over the long term.
  
  However, investors need to hold them for long term.
  
  Besides giving higher returns, investors will also face lower risks when they invest in these good fundamental stocks compared with speculative stocks.
  
  In this article, we will look at the performance of Warren Buffett’s investment company, Berkshire Hathaway Inc versus the performance of S&P 500.
  
  The table summarises the historical performance for Berkshire versus the S&P 500 from 1965 to 2007 (a total 43 years) based on the latest available 2007 annual report.
  
  Based on the annual report, the yearly compounded gain for Berkshire was 21.1%, which outperformed the 10.3% returns generated from S&P 500 over the same period.
  
  In general, in most periods, the returns from Berkshire were higher than those from the S&P 500. However, we need to understand that Buffett did not generate 21.1% every year.
  
  There were 23 years in which his returns were lower than 20% (we used the nearest 20% as the benchmark).
  
  Nevertheless, during the bull markets, Berkshire was able to generate annual returns of 40% to 60% for five years whereas there was not a single year in which S&P 500 charted above 40% returns per annum.
  
  In terms of losses, Berkshire only reported one year of negative return versus S&P 500, which has 10 years of negative returns.
  
  To quote one of Buffett’s most important investment principles: “If you want to win, you don’t lose.”
  
  To Buffett, as long as you can reduce the losses incurred in the bear market and increase the percentage of high returns during the bull market, your performance should be higher than the overall market performance.
  
  In short, we cannot expect to generate high returns every year. We have to accept that there will be certain years we need to protect our capital from incurring losses rather than thinking of how to generate high returns.
  
  Almost all investment gurus or analysts say that 2009 will be a tough year. As long as we can avoid incurring losses and have the patience to wait for the next bull market, we should be able to outperform the overall market over the long term.

There are issues I would disagree!

1. One cannot simply use Warran Buffett and Berkshire as a comparison. Bottom line here for me, this is Malaysia and the companies that one can invest in simply pales in comparison to the companies that Warren Buffett and Berkshire invests in.

Simplest example. Take Coca-cola for example. Does the local companies here have the same durable long competitive advantage that Coca-cola has? What about the management?

If our companies pale in comparison, then can the same investing strategy work? Can we pick any stock at any price and apply the same investing strategy?

Buy and hold would not work if the company pales in comparison.

2. Can one buy and hold any fundamental stock at any price and hold it long term?

The pricing of one's investing is always important! Price is what you pay and value is what you get!

Take Coca-Cola. It is a good 'fundamental stock' yes? ( Hate that term 'fundamental stock'! Absolutely hate such labeling of a stock! )

Can one buy Coca-Cola and hold it long term and assume that they will always give a good return?

Simplest logical reasoning would dictate that if one overpays for the investment, holding the investment for a long term simply does not correct our initial investment mistake of overpaying for our investment!

Don't believe?

In 1998, Coca-cola used to trade as high as 80 bucks.

Let's not use the folly of buying Coca-Cola at 80 bucks. How about buying Coca-cola at 65.00. (65 looks a much cheaper 'discount' from 80, yes?)

The below chart of Coca-cola since 1998 says a lot of things.

Coca-cola today is only some 44 bucks! And if one had purchased Coca-cola at 65 bucks back in 1999 and held their investment for a decade, did this 'Fundamental stock always provide a good returns'?

Is Coca-cola a bad business? Hell no. I think it's a wonderful business!

So why did 'it' failed?

Simple! When you pay too much for your investment, most likely than not, you would NOT get a good return at all!

Take local Malaysian stocks.

Take Parkson Holdings ( I would argue against it being as a good 'fundamental stock'!). If one had over-paid their investment in this stock at 8.00 last year, the stock is now worth 3.40!!!!!

Want to hold it long term? We shall see!

Pricing does matter yes?

ps. I do believe in investing but not as how it's preached locally!!

Local Malaysian Blogger Declines 4 Million Proposal!!

Posted the other day: Local Malaysian Blgger Claims Markets Returns Of Over 1500% In 16 Years!

In which I highlighted two other blog postings; The claim: 299%returns in 26 months is no big deal ? >then what about >1500% returns in 16 years ? no big deal also !? and the proposal by blogger, Seng, Samgoss outperforms Buffett over past 16 years? A $4 Million Proposal to Samgoss

One reader cum blogger, Jasonred79 form The Angry Investor, was actually interested in chipping money in. See comments posted here.

However, Jasonred79, has since withdrawn his proposal. Since Jason is someone that had taken this issue very seriously, I would like to publicly broadcast why Jason is withdrawing this proposal. His comments are most enlightening!

• I hereby withdraw my offer after reading sam's blog:
  
  "First of all, did I ever said I beat warren buffet in my posting ? where ? don’t twist d story ..ok ? ..come back to my 1,500% returns in 16 years …K..let me teach u what is 1 + 1 = 2 lar ha ha… I started my shares investment in 1992 with initial capital of 12K+ , as known to u guys, 1993 is a super bull year , KLCI rose from 450 to 1,314 within a year , Idris shot up from RM 0.50+- to RM8.80, same goes to Aokam from RM0.80 to RM 16.00+, repco >RM100 ! for one to make millions or >1000% returns in 1993 is definitely not a problem ( ask those old birds who involved in 1993 if u doubt ) ! Hence , I hv made about 135K+_ in that particular year !
  
  12K to 135K -= >10 times or > 1000% ! ( see d attached picture). So..what is so difficult 4 me to achieve another 500% returns from 1995 to 2007 ? look at my 2007 result , this year alone I hv acheieved about 299% returns ( as per attached picture ) ! so ..is that so difficult to make 1500% returns in 16 years ?? ha ha … as I said , y d length of our fingers r not d same (十个手指有长短)!? y some can be so rich y some cant ? y some can be doctor n lawyer , y some cannot ? sour seng ohh sour seng , u cant do it doesn’t mean we can't do it oso ! faham ? ha ha"
  
  
  My concern here is: he claims he made 1000% in his first year of trading.
  
  Removing this outlier, we arrive at an 50% return on total capital over 15 years.
  
  Which is rather sub-standard.
  
  So, I no longer have any interest in giving my investment capital nor to convince my friends and family to invest.
  
  I am officially withdrawing my offer.

I would agree very much with what Jason is doing here. This is blogsphere and some bloggers sure make big claims. And when there is an opportunity to really prove their claims, they declined. And more incredibly, he has declined a RM 4 million proposal. How? Do you honestly believe such claims?

Freightening Deterioration For British Economy!!

Posted on CNBC: UK Recession May Be the Steepest in over 20 Years

The following passage...

• "Frightening Deterioration"
  
  Britain's economy has been particularly hard hit in recent months as banks around the world have reined in lending to repair overextended balance sheets.
  
  The British Chambers of Commerce urged the government to take "additional forceful corrective measures" as it warned that businesses were facing their toughest conditions in more than two decades.
  
  It said its quarterly survey of almost 6,000 firms showed a "frightening deterioration" towards the end of last year as sales, orders, investment, employment expectations, cashflow and confidence deteriorated at the fastest pace since the series began in 1989.

Click here for rest of news article: http://www.cnbc.com/id/28631961

Shipbuilders Like Keppel and Cosco Getting Hit

Published on Bloomberg News: Keppel, Cosco Drop as Shipbuilding, Offshore Orders Terminated

• Jan. 12 (Bloomberg) -- Keppel Corp. and Cosco Corp. Singapore Ltd. dropped in Singapore trading after customers terminated orders to build ships and offshore platforms, raising concern slowing demand will lead to more cancellations.
  
  Keppel, the world’s largest builder of oil rigs, fell as much as 7.3 percent to S$4.56 and traded at S$4.62 as of 10:31 a.m. local time, poised for its largest drop since Dec. 1. Cosco Singapore, a Chinese shipbuilder, slumped as much as 8.6 percent to 80 Singapore cents and last traded at 81 cents, set for the lowest close since Dec. 2.
  
  The worst global recession since the Great Depression has caused funds to dry up, making it difficult for shipping lines and oil explorers to arrange loans for new vessels and drilling equipment. Keppel said on Jan. 9 Scorpion Offshore Ltd. terminated a $405 million rig order, while Cosco Singapore said an Asian shipping line canceled two contracts.
  
  “Singapore yards, including Keppel, may continue to face potential cancellations from highly-geared rig owners” that have difficulty funding contracts out of future operating cashflows, Serene Lim, a Singapore-based analyst at DMG & Partners Securities, said in a report today.
  
  Opportunities are being explored for third parties to take over the building of a drilling rig after Scorpion canceled the order, unit Keppel Fels Ltd. said in a Jan. 9 statement. Talks are also on to terminate a contract with Lewek Shipping, Keppel said.
  
  Revised Terms
  
  Seadrill Jack-Ups Ltd. will continue with the construction of two rigs on “revised terms,” Keppel said without elaborating. Seadrill also revised terms of its contracts with SembCorp Marine Ltd., the companies said on Jan. 9. SembCorp Marine, the world’s second-largest rig-builder, declined 5.4 percent to S$1.74.
  
  Great Eastern Shipping Co., India’s second-biggest sea-cargo carrier, canceled orders for two of four vessels placed with Cosco last week. Cosco has dropped 16 percent this year after retreating 84 percent in 2008, the worst performer on the Straits Times Index. The Baltic Dry Index slumped a record 92 percent last year and last week traded at 872.
  
  “We expect more cancellations and deferments in the first half of 2009 as the Baltic Dry Index continues to hover below 1,000 levels,” Lim wrote.

Bank Of England Now Free To Print Extra Money!!

Here's an interesting posting on UK Telegraph: Reform plan raises fears of Bank secrecy

Bank secrecy? Banking without transparency?

This is what the author has to say.

• By Edmund Conway, Economics Editor
  Last Updated: 7:01AM GMT 12 Jan 2009
  
  The Government is set to throw out the 165-year old law that obliges the Bank to publish a weekly account of its balance sheet – a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel's Government in 1844 which originally granted the Bank the sole right to print UK money.
  
  The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.
  
  However, some have warned that it means: "there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses."
  
  It comes after the Bank's Monetary Policy Committee cut interest rates by half a percentage point, leaving them at the lowest level since the bank's foundation in 1694.
  
  With the Bank rate now at 1.5pc, most economists suspect the Government and Bank will soon be forced to start quantitative easing – directly increasing the quantity of money in the economy – in a drastic attempt to prevent a recession of unprecedented depth.
  
  Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks' printing presses ultimately caused hyperinflation.
  
  The Bank said it will still publish details of its balance sheet, but, significantly, the data – the main indicator of the extent of quantitative easing – will not be presented until more than a month has elapsed. For instance, under the new terms of the law, if the Bank were to have embarked on a policy of quantitative easing last month, the figures on this would not be published until the end of this month.
  
  The reforms, which are likely to be implemented later this year, will make the Bank of England by far the most secretive major central in the world, experts said.
  
  In the US, where the Federal Reserve has already cut rates to close to zero and started quantitative easing, the main way to track its purchases of securities and the expansion of its balance sheet is through precisely these same weekly accounts.
  
  "Quite why the Bank has to keep its operations so shrouded in secrecy is a mystery to me," said Simon Ward, economist at New Star. "This [reform] will make it much more difficult to track what the Bank is doing."
  
  Among the details which will no longer be published are those revealing the extent to which London's banks are using the Bank's deposit facilities – a yardstick of pressure in the financial system.
  
  Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: "Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.
  
  "If we went down that path we would be following a road which starts in Weimar, goes on through Harare and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about – but the Bill abolishes it."

Oh Lord!

Banking without any transparency???

Why Hedge Funds Are Ponzi Schemes

Published on Times.Com: The Ponzi Scheme in Every Hedge Fund

• By Ari J. Officer Monday, Jan. 05, 2009
  
  Bernard Madoff's $50 billion Ponzi scheme continues to rock the financial world. But most hedge funds actually engage in similar — albeit legal — practices in the short run. In the past, these practices helped inflate their gains as well as hedge-fund managers' salaries and bonuses, but recently they helped bring about the failure of many major hedge funds
  
  At the heart of the difference is the distinction between realized and unrealized gains. Gains are realized when assets are liquidated to cash. For instance, if you buy a stock for $100 and it is currently trading at $200, you have made $100 in unrealized gains. If you sell it at $200, you have made $100 in realized gains. Most hedge funds do not regularly liquidate their entire portfolio, so they report unrealized gains to their investors and to the public. (See the top 10 scandals of 2008.)
  
  Now comes the murkier part: Many assets — particularly those that unregulated hedge funds can trade — are not as liquid as stocks, so they do not always have a definite price on the market. Since a fund reports unrealized gains, it could easily get away with inflating profits. More specifically, the fund could use the most optimistic models to price its illiquid assets, which include mortgage-backed securities and other swaps. After all, economists disagree about how to value these assets, so the fund is not necessarily being dishonest in its assessment.
  
  Madoff never even came close to realizing the gains he reported and paid out to some investors. Yet even funds with fairly accurate estimates of unrealized gains are guilty of engaging in similar Ponzi practices in the short term. Here's why:
  
  Suppose some investors decide to withdraw their money from a hedge fund. The fund must liquidate the appropriate amount of its assets to pay these investors. Say the fund holds large positions in illiquid assets. The fund cannot immediately sell these assets, except at a fatal loss, so it would sell its more liquid assets. Given that the fund is more likely to inflate its estimation of the illiquid assets, it would seem that investors who withdraw early get the better returns over that time period. Sounds a bit like a Ponzi scheme, right?
  
  Even in the most vanilla of trades, liquidation can impact the market price. With lightly traded securities, this can be magnified. For example, a fund might corner some asset by buying and buying and buying and then reporting a huge unrealized gain. But the moment the fund tries to sell and realize the gain (perhaps to pay off its last few investors), demand disappears, and the asset crashes. Again, investors withdrawing early got better returns over that time period than those who waited until later. (See the top 10 financial collapses of 2008.)
  
  Every year hedge funds do have to liquidate part of their profits in order to pay their managers, traders and other support staff. Fund managers typically keep 20% of (unrealized) trading profits. But first they must realize that 20% by selling the liquid assets. If a fund is overestimating the value of the illiquid assets, then its manager's profit is grossly overestimated. In most cases, the profit is at least slightly overestimated because of slippage in the liquid assets. In other words, if a fund liquidated all profits, the supposed 20% taken out first would actually be larger than 20% of the total realized profit.
  
  If hedge funds had to regularly liquidate assets, we would not see the spectacular returns reported in the past. One factor of the supposed success of hedge funds is their ability to report unrealized gains and to be flexible in liquidation, since investors who believe they are getting high returns are unlikely to withdraw their money. That was how Madoff was able to maintain his charade for so long.
  
  Wonder why Chicago-based hedge fund Citadel is not allowing investors to withdraw their money until at least March? Citadel has already reported about 50% losses for its two largest funds. Remember: these are unrealized losses. If Citadel liquidated assets to pay out to investors, losses would be even greater. Barring a miracle, the first investors out would lose less than those going out later. But even in good times, the withdrawal of money from a hedge fund impinges its performance.
  
  Hedge funds are designed to take in more and more investors' money. Then inefficiencies and performance distortions of withdrawing money for investors and profit-taking for managers are smoothed out. The recent failures in hedge funds, while rooted in the financial meltdown, have been further fueled by the lack of new investment as well as pressure from current investors to take their money and run. Regardless of a fund's investment strategy, liquidation tends to make unrealized gains smaller — and unrealized losses larger — when they are finally realized.
  
  By design, hedge funds benefit managers more than investors. Since the liquidation of assets always results in slippage — the more that is sold, the worse the price — managers for every hedge fund always get the "best" 20% of the profit.
  
  So you see, there could be a little Ponzi scheme in every hedge fund. It is inherent to the model of the modern hedge fund. The only way to avoid these schemes is to regularly liquidate all assets and allow all investors to decide what to do with their cash returns. In the past, this would have meant seemingly diminished returns. With returns seemingly high, investors did not complain about the status quo. Now, given that regular liquidation would mean more transparency and diminished losses, in recent days investors' opinions would likely differ.

Gold Rush Is On!!

Posted on The Daily Telegraph: Gold rush erupts over financial crisis

• THE global financial crisis has sparked a new gold rush.
  
  Worried investors seeking a safe home for their money are ploughing billions of dollars into the precious metal in a bid to preserve their wealth, The Daily Telegraph reports.
  
  Demand has now reached such unprecedented levels that the Perth Mint, Australia's biggest wholesaler of gold coins and bars, has been forced to ration its sales.
  
  Perth Mint's bullion sales rose 194 per cent in the December quarter compared with the corresponding period in 2007, while silver bullion sales were up 140 per cent.
  
  The mint has suspended sales of all gold bars and all bullion coins - except its 1oz "Kangaroo" gold bullion coin.
  
  On Monday, after a three-month suspension, it will expand its range of bullion coins for sale but the restrictions remain in place for minted gold bullion bars so the mint can sell some gold to as many customers as possible.
  
  "We are working three shifts a day, six days a week, and still can't keep up with demand," Perth Mint CEO Ed Harbuz said. "I've never known anything like this in the precious metals market.
  
  "We would be working Sundays too but we are having difficulty getting enough staff."
  
  Non-minted gold in the form of cast bars produced by Perth Mint's local refinery can still be bought, although customers who want the bigger bars often have to wait several weeks.
  
  One customer recently bought $500,000 worth of bullion and wanted it delivered so he could hold it personally.
  
  "For very big orders we normally keep the gold in our depository for security reasons," Mr Harbuz said.
  
  "Orders of $10 million or more are not unusual. Often the orders are much larger if we are dealing with pension funds or institutional investors."

Detecting Companies' Malpractices

Excellent article posted on Star Business: How to detect companies' malpractices

• Saturday January 10, 2009
  
  How to detect companies' malpractices
  
  Investors have lost thousands and millions due to companies’ malpractices but there are ways to detect the warning signals
  
  Following the revelation of the shocking Bernard L. Madoff’s US$50bil Ponzi scheme, there has been much uproar over the US regulator’s incompetence in failing to uncover a swindle of such mammoth proportions.
  
  Madoff’s Ponzi scheme is possibly the largest financial fraud in US history. Questions have been raised as to how this could escape the eye of the Securities and Exchange Commission.
  
  Thousands of enraged investors have accused Maddoff of stealing their life savings.
  
  Here in Malaysia, while not of that magnitude or of the same nature, investors have found their investments dwindle due to significant accounting-related mishaps.
  
  Transmile Group Bhd, a once-upon-a-time darling, rattled investors by its accounting fraud. Then, there was optical disc producer Megan Media Holdings Bhd which incurred huge debts and losses over “massive collusive fraud”. When discovered in August 2007, Megan Media was grappling with losses and debts to the tune of over RM1bil.
  
  The dramatic exposure of Transmile came to light in mid-2007, when auditors discovered fake receivables sitting on Transmile’s books. From a market cap of RM3.89bil at its high of RM14.40 on Jan 3, 2007, the company has now been reduced to a dismal market cap of RM155.32mil.
  
  Since then, Transmile shareholders have collectively lost billions. Not surprisingly too, Transmile has been announcing losses in its quarterly earnings since.
  
  There were, however, some shrewd fund managers who managed to escape unscathed from the Transmile episode. Trusting his gut, a fund manager from a local firm sold his Transmile shares at the peak, just before the issue erupted. He tells how he was already feeling uneasy with management’s consistent evasiveness during analyst briefings.
  
  “Management was avoiding some of the questions we asked. They could not give me a straight answers,” says the fund manager.
  
  What are the signs?
  
  Investors who have been victims of fraud are probably angry and want retribution. Before that happens, maybe watching out for red flags would be more helpful.
  
  When choosing to invest in a stock, MIDF Amanah Asset Management Bhd chief executive officer Scott Lim says a key criteria is honesty in management.
  
  He is wary of companies, which during company visits, tell fund managers one thing but announce a different thing altogether. He believes the company should be totally transparent and try their best to explain their actions to all shareholders.
  
  “Whether the fund manager is a majority or small shareholder, they should have total access to information. If the company is beating around the bush, and not being direct in their answers, I think it is time to sell their shares,” he says.
  
  A fund manager who had the bad experience of being deceived by a second board Malaysian-listed company, says investors should be careful when management promises unrealistic returns.
  
  Looking at the character of captain of the company is also important. “If they are the sort who veils everything, very tight lipped, won’t give much information to analysts or shareholders, and are combative in nature, it’s time to be careful,” he says.
  
  He says another red flag is when companies are unable to articulate a clear strategy or are vague on how it gets its returns.
  
  Kumpulan Sentiasa Cemerlang head of stock research and partner, Choong Khuat Hock, admits that it is not easy to spot a fraudulent company, but there are a few signs one can watch out for. “I would still look at the balance sheet. If the company has a very high debt level, or has a business model that relies on a lot of capital expenditure to grow, then I would be wary,” he says.
  
  He adds that companies that are trying to boost their earnings to maintain their past track record, could also fall prey to fraud as there could be attempts to manipulate their books. “This was probably what happened to India’s Satyam group. They needed to increase earnings to meet analyst expectations,” he says.
  
  Recently, Satyam Computer Services Ltd chairman Ramalinga Raju resigned after saying he falsified accounts and assets. Raju unsuccessfully tried to sell two companies to Satyam last month in a final attempt to plug 50.4 billion rupees of “fictitious assets” on the company’s balance sheet.
  
  Choong also advises investors to invest in companies which possess a consistently good corporate governance track record.
  
  “Avoid companies that have dabbled with related party transactions or have been involved in buying over family-related companies. The company may do it again. Sometimes a leopard doesn’t change its spots,” he says.
  
  The local fund manager tells shareholders not to be complacent even when the captain behind the company appears to have a lot of integrity. “You have faith in the person. You see good profits and hence, may abandon common sense. But when the company guarantees a certain level of performance, be suspicious. Be very doubtful if his track record looks too good to be true, because it probably is,” he says.
  
  He adds that if the investment manager’s record seems remarkably steady over a long period of time, it ought to provoke scepticism. After all, markets fluctuate between good and bad times. If returns continue to be good despite market fluctuations, it doesn’t make sense.
  
  Like a Ponzi scheme, a pyramid scheme depends on keeping its volatility low, so that victims don’t start thinking of cashing in en masse. The moment that happens, the game is over, and shareholders get burnt.
  
  Nonetheless, there are many times too that shareholders fall for financial scams simply because of their own gullibility.
  
  This can be explained by the “irrational exuberance factor”. This is the tendency of humans to model their actions, especially when faced with affairs they don’t entirely comprehend, on the behavior of other humans.
  
  So, if a stock is deemed solid and full of potential by most fund managers, then the investment must be good and most people flock to buy the stock. Still, and as many bitter episodes have shown, it is no guarantee of capital preservation.
  

Local Malaysian Blgger Claims Markets Returns Of Over 1500% In 16 Years!

Move Over Warren!

I kid you not!

Posted on a local Malaysian blog posting, 299%returns in 26 months is no big deal ? >then what about >1500% returns in 16 years ? no big deal also !?

A claim of 1500% returns in 16 years!
That's a compounding return of 57.94% per annum!

(Mistake made: Compounding return should be 18.9% per annum!)

Ah yes, many are doubting the very arrogant words from that website. And fellow blogger, Seng, wrote in his latest posting, Samgoss outperforms Buffett over past 16 years? A $4 Million Proposal to Samgoss

• A $4 Million Proposal to Samgoss
  
  Ok. Let's give Sam a chance to prove he is genuine.
  
  If Sam is willing, then, let me make this simple business proposal publicly.
  
  Allow me to hire an external auditor to audit Sam's trades over the past 16 years.
  
  If certified true, then, I will not hesitate to make a business proposal to Samgoss that guarantees that he will not be dissappointed.
  
  He will stand to earn $4 million or more a year in income if he repeats his annual performance over the past 16 years.
  
  A monthly adviser fee of $20,000 per month is a definite insult!
  
  I am firstly a business man, and I really couldn't care less about the past. All I care about is the future.
  
  To kick start this, I only require Sam to do one very simple thing.
  
  Even a teenage child can do this.
  
  All Sam have to do is to write to me to let me know this:
  
  1. His full name
  2. His I/C number
  3. His contact number
  4. The names of the banking and security firms he traded with over the past 16 years that generated 1,500% return.
  5. Be ready to sign a document that would authorize an external auditor to investigate and audit his investing record over the past 16 years. I expect 100% cooperation from Sam and no childish nonsense.
  
  I will select the auditor. I will bear 100% of the external auditor costs. ZERO cost to Sam. (If substantial, I reserve the right to refund this from the fund later).
  
  AFTER the external auditor certify and vouch that his results are true, I publicly promise to do the following things:
  
  1. I will personally provide Sam with $0.5 million of my own money to invest.
  
  2. I promise to undertake - on best effort basis - to have my family and friends to contribute another $4.5 million, making a total contribution of $5 million for Sam to invest on our behalf. With an investing record of 1,500% return over the past 16 years, I am confident in raising AT LEAST this much. Easy sale job.
  
  3. I also promise to undertake - on best effort basis - to have everyone I know to contribute another $15 million for Sam to invest. With better than Buffett's record, another EASY job.

Seng then continues..

• 4. Sam does not need to worry about regulations, licensing and all legal stuff. I will take care of this. As usual, we will require business insurance policies on Sam's life - this is just standard business clause, and nothing to be concerned about - the premiums gets charged to the fund. Sam does not have to worry about back-office, compliance, accounting, reporting, etc. - all this will automatically be taken care of.
  
  5. Raising $20 million of funds to invest, AFTER the external auditor certifies 1500% returns over the last 16 years is genuine and true is The Easy Part. We might end up with more funds to invest!
  
  6. This is essentially a hedge fund. Sam can expect 20% standard profit sharing for returns exceeding a low minimum threshold.
  
  7. If he repeats his performance of 100% return per annum, then, 20% x 100% returns x $20 million = $4 million yearly profit for Sam alone!
  
  8. Everything will be legal, Sam will be required to sign a contract.
  
  9. At the right time, AFTER the funds are fully invested, we will arrange for newspapers to interview Sam. We expect this to boost Sam's returns BEYOND 100%!
  
  10. I reserve the right to publish Sam's life story in book and every form. Of course, if Sam wants to keep a low profile, this is negotiable. But everyone knows newspaper exposure helps one to invest easier.
  
  So, this is an open and serious invitation to Sam.
  
  Once I receive items 1. to 4., I will then contact him to arrange a face to face meeting with the external auditor.
  
  I envisage the auditor to give Sam a form to sign to authorize them to contact various banks and security companies to disclose past trade details for their investigation, amongst other things.
  
  This could take a while since we are dealing with 16 years of data, but I am willing to pay 100% for the cost to verify this.
  
  Once everything is completely verified and certified by the external auditor, I will contact Sam again.
  
  We will then proceed to discuss all the necessary details, and I will personally take care of the rest so that Sam can focus on his investing job. All Sam has to worry about is how to generate 100% return in 2009 on an asset base of $20 million, based on his so called FA stock selection methods.
  
  Naturally, we will also hire a bodyguard for Sam - 24 hours per day, 365 days per year. Anyone who can generate 1500% returns in past 16 years is priceless.
  
  And more importantly, once the auditors certify that it is true, we will not prevent him from rubbishing TA methods in the Net. In fact, I will personally lend MY BLOG and CHATBOX for Sam to continue to rubbish TA methods! That's a promise from me!
  
  So, Sam, how?
  
  $4 million profit to you every year!
  
  ZERO concern yes?
  
  Send me NOW your full name, your I/C number, your contact number, the name of the banks and security firms that you have traded over the past 16 years that generated your 1500% returns for auditing.
  
  And to all of "Sam's supporters":
  
  I don't want to hear any more childish nonsense on anything else!
  
  All I want to hear from you is why your "sifu" did not accept my $4 Million proposal yesterday.
  
  I look forward to hearing from Samgoss personally by Monday latest.
  
  Otherwise, the entire world knows that Samgoss is a FAKE.
  
  Everyone will be asking why Samgoss turns down a $4 million per year offer.
  
  Sam's records say that his fund is less than $1 million today. Why would anyone blog so much like he does, but doesn't accept a $4 million per year offer?
  
  He doesn't have to do anything different.
  
  So, I sincerely hope Samgoss is genuine. Otherwise, that would be extremely dissappointing, because I'm also finding it tough to generate a fraction of Samgoss' returns ... so, for everyone's sake, let's pray that Samgoss is genuine and NOT a fake.

An extremely profitable proposal that Seng has made. Of course it's a double sworded as this proposal also equates to a massive challenge for Sam to prove that he is not a fake.

To be honest, 1500% in 16 years is such a record to be proud off.

Perhaps iCapital, Tan Teng Boo, should hire Sam here to be the chief investment manager for his closed end fund.

And if Sam record is as genuine as he proudly proclaim, won't you even want to invest in his funds?

Dr.Marc Faber Reckons Global Markets Rally Still Has Legs!

Transcript of interview between Dr.Marc Faber broadcasted on India's CNBC-TV18.

• Q: How have you read the big rally that came into many global equity markets in early parts of January and do you think that’s now coming apart?
  
  A: We were oversold when the S&P in the US reached 741 on November 21. We had a rally of around 25% and some markets rallied even more. We can still rally a bit more because there is a huge liquidity injection into the market by all the Central Banks around the world. But in general I feel it’s a bear market rally and that after this rally we will test the lows or exceed the lows again.
  
  Q: Is that how you are seeing 2009 that the Q1 may not be too bad but by the time we get over that we go back and retest October lows for most markets including India?
  
  A: The consensus is that 2009 will be better than 2008 and I do not think it will be much worse. I do not think we will drop another 50%. But the contrarian view would be to think that all the monetary and fiscal injections by government fail and that they run out of ammunition and the market will drift lower.
  
  Q: In this kind of an environment since both those commodities have turned quite volatile crude and gold how would you map them for this year?
  
  A: I do not think that gold will rise a lot in the near future because compared to the CRB (Commodity Research Bureau), a broad index of commodities gold is very overvalued as compared to nickel, copper and oil. In the near-term, industrial commodities which are more oversold than the stock market two months ago could rally somewhat.I would position myself as a trader in some commodities.
  
  Q: You had mentioned earlier that you expect to see global markets go back to the lows we saw last year. Would you say there is a fear of overshooting that target and markets might actually see lows lower than what we saw in October?
  
  A: Yes, I think that’s absolutely possible and likely. The global economy is in deep trouble. The big question is we are in depression but is this depression is going to be inflationary or deflationary? In both cases the markets will not perform particularly well because in a deflationary depression all asset prices will continue to go down. In an inflationary depression interest rates will go up and so on the both assumption equity prices are not particularly inexpensive.

You can watch the video clip here

Foreign Investors Are Unlikely To Shun India Despite Satyam Scandal

Published on Reuters: Despite Satyam, foreign investors to stay in India

• By Narayanan Somasundaram
  
  MUMBAI, Jan 9 (Reuters) - Foreign investors are unlikely to shun India in the wake of a fraud scandal at Satyam Computer Services (SATY.BO), with fund managers saying such events were not unique to the country and long-term prospects were good.
  
  A dramatic slide in Satyam shares -- down nearly 80 percent on Wednesday and 46 percent on Friday -- have dragged down the broader market, and some fund managers reckon this makes stocks more attractive.
  
  "It's a company-specific problem. You will find accounting irregularities anywhere in the world. It's a buying opportunity for India after it has been sold down," Adrian Mowat, JPMorgan's emerging market and Asia equity strategist, said in Hong Kong.
  
  "It's a scandal, (but) it doesn't change the growth prospects of India. Let's face it, we've seen a lot of accounting scandals in the U.S."
  
  India's benchmark index .BSESN has fallen almost a tenth since Satyam's founder and chairman Ramalinga Raju resigned on Wednesday in India's biggest corporate scandal, saying about $1 billion or 94 percent of the company's cash and bank balance did not exist and profits had been overstated.
  
  NOT TIME TO PANIC
  
  Foreign funds were key to a bull run that saw India's market rise six-fold in 2003-07. The benchmark index fell 54 percent in 2008, its worst year ever, after foreign funds withdrew more than $13 billion.
  
  In a Jan. 8 note, Macquarie Research raised India to overweight from neutral as the country was trading at a discount to Asia ex-Japan.
  
  "... with earnings expectations slashed, and a tremendous amount of monetary stimulus in the pipeline, the case for India has improved dramatically recently," wrote analysts Daniel McCormack and Tim Rocks.
  
  To combat slowing economic growth, the central bank has slashed lending rates, and the government has announced additional spending.
  
  Some investors in Europe said they would maintain their Indian investment policy unless it became clear that there was a widespread problem of malfeasance among Indian companies.
  
  "We don't think it's the time to panic. Long-term investors should continue to prefer companies with good corporate governance records," Credit Suisse said in a research note, pointing to firms such as Infosys (INFY.BO), Bharti Airtel (BRTI.BO) and Housing Development Finance Corp (HDFC.BO).
  
  Quick action by the regulator and better corporate governance norms would play a large role in supporting sentiment.
  
  The Securities and Exchange Board of India, the market regulator, has already started an investigation into Satyam and the government has promised action to prevent other frauds.
  
  Samir Arora, who oversees about $1 billion at Helios Capital Management in Singapore, said foreign investors may be scared off for a while, but expected confidence to return.
  
  "The bad news is behind us, India will be an outperformer if action is put in place. Investors can make money there."
  

Bill Gates Talk To Charlie Rose

Truly excellent.

Does Two LCCT Makes Sense?

Blogged the other day: More On Sime Darby's Labu LCCT Project.

I made the following set of comments.

• That's my point.
  
  Why can't they just make only one LCCT?
  
  To have two LCCT makes no sense at all.
  
  And to have one at Labu is even horrendous reasoning!
  
  Doesn't it defeats all logical reasoning for air travellers who seek lower air fares?
  
  How much would it take for these budget air travellers to travel to Labu to board their cheap flights? As it is, the airport at Sepang isn't too popular since it's already located so far from the city of KL. And now they want to make the LCCT at even a further location at Labu?
  
  Imagine if Labu is constructed... and nobody showed up? Not possible? Won't air travellers avoid Labu because of its location?

Aseambankers today came up with a research note on this issue.

Here is a screenshot of what they said.

Second Chance For Kosmo?

Blogged yesterday: The Delisting Of Kosmo Technology

On today's Star Business Kosmo Tech in share sale deal

• KUALA LUMPUR: Kosmo Technology Industrial Bhd has signed a share sale agreement with Kosmo Resources Sdn Bhd to acquire the entire stakes in Sierra Citra Sdn Bhd and Seraya Reka Sdn Bhd for RM75mil.
  
  In a filing with Bursa Malaysia, Kosmo Technology said the acquisition would be satisfied via the issuance of a combination of new ordinary shares in Kosmo and zero coupon three-year irredeemable convertible unsecured loan stock.
  
  Kosmo Technology said the proposed acquisitions were in relation to the proposed regularisation plan to be undertaken by the company. – Bernama

A whole new lease of life for Kosmo???!!!!

And Kosmo is up 50% in active trade!!!!!

Sigh!

Baltic Dry Index Recovers

Yes the Baltic Dry Index is inching higher.


Just posted on Forbes. Rough Seas For Dry Bulk Shippers

• Falling commodity prices and grim economic data are reviving dry bulk shipping investors worst fears: that the global recession is far from over and demand will continue to slump.
  
  On Wednesday commodity prices and stocks tumbled as investor fears over the ailing economy rippled through the financial markets. (See "Wall Street's '09 Gains Gone.") There may be a silver lining on this dark cloud: freight rates on dry-bulk ships are beginning to inch higher. Nonetheless, the Baltic Dry Index, which is managed by the Baltic Exchange in London and measures dry bulk shipping rates on 40 routes across the world, is still down over 90.0% since its summer highs over 11,000. On Wednesday the index rose 1.8%, to 789.
  
  "It's not like the demand is going through the roof," said Lazard Capital Markets analyst Urs Dur. "Hopefully if this keeps up it's a sign that the credit markets are easing. The normalization of trade has gone up in baby steps over the past two days, but I wouldn't read too much into this."
  
  Meanwhile, rates on Capesize ships, which are the largest vessels, have been steadying following a recent plunge, as steel prices rise and iron ore inventories in China continue to fall. Dur said that he saw 25 charters announced on Wednesday, 17 Tuesday, and 10 on Monday, which is an improvement though it's still down from the 35 to 50 charters a day he saw when the market was good. Nonetheless, the sector is still facing the challenge of oversupply of ships.
  
  The two-day rally in the Baltic Dry Index pushed dry-bulk stocks higher since Monday, but Wednesday saw profit-taking as investors tried to make up for some of the losses they suffered after equities began plunging over the summer.

Posted on Monday on Star Business, Dry bulk market shows signs of recovery

• Monday January 5, 2009
  Dry bulk market shows signs of recovery
  
  THE dry bulk market slump is expected to continue into this quarter due to the uncertainties in demand of iron ore transportation although it has shown slight signs of revival in mid-December.
  
  Last year, the Baltic Dry Index (BDI), the barometer of shipping cost for commodities, fell 93.4% from its peak of 11,793 points on May 20 to 774 points on Dec 24.
  
  From its lowest point of 663 points on Dec 5, the BDI had shown marginal increase of 26.1% to 836 points on Dec 17.
  
  This was then supported by the sentiment of iron ore demand. China, the world’s biggest steelmaker, imported 32.5 million tonnes of iron ore in November, up 6.2% from October.
  
  Some experts predicted that the dry bulk rates were likely to recover this year when China replenished its dwindling iron-ore inventory and demand for thermal coal started to pick up.
  
  According to TA Securities’ latest Malaysian Bulk Carriers Bhd (Maybulk) update, China’s iron ore inventory was still stalling at around 70 million tonnes while steel production and iron ore imports were in a downward trend.
  
  Maybulk is the biggest dry bulk shipping company in the country.
  
  “It is reported that Chinese steel companies are seeking to change the commencement of the iron ore term contract for this year, as prices of the steel-making raw materials dropped sharply in recent months,” said the report.
  
  China would usually conduct price negotiations with the top three iron ore producers – BHP, Vale and Rio Tinto – in April every year.
  
  The report said if the negotiation was successful, it would give short-term positive sentiment that would help revive the collapsed dry bulk freight market as steel mills could buy raw materials at more favourable prices.
  
  “This will in turn benefit the dry bulk shipping companies such as Maybulk,” it said.
  
  Meanwhile, the report said the International Energy Agency (IEA), in its latest monthly report, indicated that China’s exports were expected to slow down as its main export markets in Europe and the US were expected to slow sharply this year.
  
  “Nonetheless, we believe the stimulus plan of 4 trillion renminbi announced by the Chinese government to revive the economic growth might cushion the poor condition in the long run,” it said.

Recovery in this sector? Yes.

However, before one gets carried away, let's consider the following chart of the BDi from 2000 to 2003.


We are now at 821.

Compare to where the index was from 2000 to 2003.

How do you now feel about the index being at 821?

Yes, the baltic dry index has recovered from below 700 but that's probably all what one can say about the index currently, yes?

So if one says 'recovery yes, profitability no', would you dare argue against such statement?

Other baltic postings made: http://whereiszemoola.blogspot.com/search?q=bdi

Comparing Megan Media And Satyam

Posted yesterday: More From Satyam Scandal

The following passage...

• Raju also said Satyam's balance sheet as of Sept. 30 had a non-existent cash balance of 50.4 billion rupees; nonexistent accrued interest of 3.76 billion rupees; an understated liability of 12.3 billion rupees; and an overstated debtor position of 4.9 billion rupees compared with 26.51 billion rupees reflected in its books.
  
  "This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in the second quarter alone," said the executive.

Hmmm...

1. had a non-existent cash balance of 50.4 billion rupees;

2. nonexistent accrued interest of 3.76 billion rupees;

3. an understated liability of 12.3 billion rupees;

4. and an overstated debtor position of 4.9 billion rupees compared with 26.51 billion rupees reflected in its books.

I decided to dig my old notes on Megan Media. Yeah, our Malaysian version of Enron. See The Naked Truth in Megan

Let me repeat what was posted in that posting.

Ok, Megan posted that Megan Media posts RM1.14b net loss in 4Q.

I have decided to have some fun in spotting the differences between yesterday's Quarterly rpt on consolidated results versus their previous quarterly earnings reported on March 2007.

I will state the current one first followed by the previous quarter.

1. Sales revenue. 21.417 million versus 306.150 million.

2. Property & plant. 101.939 million versus 588.601 million.

3. Investment in associate. Zero versus 67.502 million.

4. Inventories. 26.355 million versus 125.090 million.

5. Trade receivables. 13.601 million versus 430.354 million.

6. Other receivables,deposits and prepayments. 12.891 million versus 260.787 million.

7. Total assets. 163.441 million versus 1.511 billion!

8. Accumulated losses of 1.041 billion versus retained earnings of 262.545 million.

9. Total Equity-(Deficit) of 796.963 million versus total equity of 506.963 million.

10. Net Asset per share of -3.92 versus Net Asset per share of 2.50.

Well Megan cooked up their sales revenue, the property plant value, investment value in its associate, inventories and receivables!

So who was the better cooker? :P

And lastly, I would like to state that it's best one not be narrow minded and assume that all Indian companies and all Malaysian companies are crooked as Satyam and Megan Media. Or just because there was a Maddoff, I do not think it's right to assume that all American funds are crooked.

For me, I truly believe that one cannot make such prejudiced and narrow minded statement such as that above. Yes, crooks will exist. Not only in India. Not only in America. Not only in Malaysia. Crooks simply exist. However, let us not discriminate the majority of honest and hard working people that exist too.

And as for investing, isn't the golden rule in investing is that one should want to invest only in the wonderful business that is managed/owned by people that can be trusted at a low price?

Take Megan Media for example. Was it ever an investment grade stock? My answer is simply NO.

More Capital Borrowing For AirAsia????

I chuckled yet again when I read the following news article on Business Times. AirAsia in funding talks

• AirAsia in funding talks
  By Presenna NambiarPublished: 2009/01/09
  
  The airline is exploring financing options in the event that it has to be the party developing the RM1.6 billion low cost carrier terminal in Labu
  
  AIRASIA Bhd is in talks with infrastructure funds and bankers on the funding needed to develop the RM1.6 billion airport in Labu, Negri Sembilan.
  
  "Sime Darby Bhd has not finalised whether they will be an equity holder, developer or just outright sell the land to us. So, on our side, we have to be prepared for any eventuality," AirAsia Bhd deputy chief executive officer Datuk Kamaruddin Meranun told reporters in Sepang yesterday.
  
  AirAsia said the group was prepared to own the airport, but preferred to be just an operator.
  
  The airport, to be built on 1,200ha, is to be completed by March 2011.
  
  "So, in the event that Sime Darby says we have to develop it ourselves, we have already started talking to some infrastructure funds and bankers. We are not concerned about financing," Kamaruddin said.
  
  Yesterday, AirAsia held a briefing and tour of the proposed site for the new airport in an effort to stem a public outcry against the project.
  
  Sime Darby officials are expected to speak to the media about the project next week.
  
  AirAsia chief executive officer Datuk Seri Tony Fernandes has dubbed the low cost carrier terminal (LCCT) to be built in Labu as "Terminal Rakyat".
  
  "We want the public to understand what we are trying to do and that we are trying to do something good for the country," Fernandes said.
  
  KLIA East is to be connected to two rail links, via Keretapi Tanah Melayu and Express Rail Link, at a cost of RM20 million.
  
  Details on which party will finance the links have not been finalised.
  
  On why AirAsia needed its own airport when Malaysia Airports Holdings Bhd (MAHB) had already made known plans of building a permanent LCCT with a capacity of 30 million passengers, Fernandes said he did not think that it would be feasible for MAHB to build the terminal, considering the delays which had occurred during the expansion of the existing LCCT.
  
  According to Fernandes, the expanded LCCT was supposed to be ready by September 2007. It is still undergoing work and will be completed by March this year.
  
  "The last time I spoke to MAHB, they told me they could only build me a permanent LCCT by 2014 at a site opposite the main terminal now. That made us very, very nervous," he said.
  
  Consequently, the airline began looking for an alternative, Fernandes said.
  
  "The key thing is, we cannot slow down our growth; we have planes coming in. For AirAsia X alone, there will be six planes by the end of 2009," he said.
  
  MAHB, in a press statement last Monday, had said that AirAsia had been consulted on the development of its National Airport Master Plan, which includes the proposed permanent LCCT.
  
  Fernandes said that he was open to MAHB having an interest in the Labu airport.

I really wonder if there is absolutely no cost in one's funding.

Take a look at this posting: AirAsia Posted Massive Losses!

I will just take out some important facts.

1. Cash balances is now only 774 million compared to 1.084 billion in its previous quarterly earnings!

2. In its previous quarter, I thought AirAsia borrowings were extremely high at 5.397 billion.
AirAsia total debts is now 6.352 billion!!!!!

Now if you reckon that is bad, what about AirAsia's capital commitments? Have a look at the following screen shot. (source of data: Quarterly rpt on consolidated results for the financial period ended 30/9/2008 )

AA still has capital commitment totalling a whopping 24.1 billion!

So let's summarise. AA on its last quarterly earnings said that it has Cash balances of 774 million, total debts of 6.352 billion and a capital commitment of 24.1 billion.

And it now wants to seek funding to be part of the developing party to develop a LCT terminal worth rm 1.6 billion?

Is money really that cheap that one can borrow and borrow and borrow??????

Can one really borrow, borrow and borrow like there is no tomorrow?

Doesn't summer eventually turn into fall and fall eventually turns into winter?

Less Faith For Accounting Big Four After Satyam Scandal

In the wake of the Satyam scandal (see Scandal Breaks Out At Satyam! and More From Satyam Scandal )

Published on Business Times: Scandal shakes faith in accounting Big Four

• Scandal shakes faith in accounting Big Four
  Published: 2009/01/09
  
  One insider says PricewaterhouseCoopers was as shocked as anyone at the admission of years of financial deception at Satyam Computer Services
  HONG KONG: A US$1 billion (RM3.53 billion) fraud at outsourcing firm Satyam Computer Services, dubbed "India's Enron", has shaken investor confidence in the world's Big Four accounting firms, which have expanded rapidly in Asia despite a general shortage of qualified accountants.
  
  Ramalinga Raju, founder and chairman of India's fourth-biggest software services exporter, resigned on Wednesday saying profits were falsely inflated for years.
  
  "This is shocking. I can't even let my thoughts go in the direction that there is another Satyam somewhere," said Shailesh Haribhakti, executive chairman of BDO Haribhakti, a consulting and management services firm based in Mumbai.
  
  "I have very high respect for PricewaterhouseCoopers (PwC) who are their auditors, but it's incredible that such gross things existed and were not discovered," he said.
  
  PwC said it was examining Raju's five-page resignation letter and declined further comment, though one insider said the accountant was as shocked as anyone at the admission of years of financial deception at Satyam.
  
  PwC staff in Asia said they had received internal emails yesterday telling them not to discuss Satyam publicly.
  
  "We are also shocked by the Satyam news and many of our colleagues and managers describe it as India's Enron, so you can imagine how big the impact will be to us," one PwC employee said on condition of anonymity.
  
  PwC accelerated its Asia expansion in 2002 when it took over offices and staff from Arthur Andersen, which was auditor for Enron and once one of the "Big Five" global accounting firms, along with PwC, Ernst & Young Deloitte & Touche and KPMG.
  
  Like its three big rivals, PwC has grown rapidly across Asia, particularly in China and India, recruiting thousands amid fierce competition for talent.
  
  Frank Lyn, PwC's Beijing-based China Markets Leader, said in November that a shortage of talent was the firm's top challenge in China.
  
  It can take three to five years to groom a fresh graduate at a major firm like PwC to the level of senior associate, who can meet clients directly for accounting services.
  
  But firms in busy markets have sometimes fast-tracked new hires in services that can be beyond their professional level.
  
  Sharmila Gopinath, research director at the Asian Corporate Governance Association in Hong Kong, said accounting firms face a lack of qualified people at all levels in Asia.
  
  "Sometimes people, especially at the top, find themselves stretched at certain levels, especially when it comes to supervision of work," she said.
  
  "While the Big Four work in places like India, China and Malaysia within the local context, they have a global standard which they must adhere to. Yet, the local rules can be vastly different and time-consuming to comply with," she added.
  
  David Legg, managing director at Gerson Lehrman, a consulting firm specialising in private equity investments, said the Satyam case was a warning that investors should not rely exclusively on financial due diligence by accountants for deal-making decisions.
  
  Gerson Lehrman says it provides "double-check" and in-depth research services for many private equity investors who also hire the Big Four for regular due diligence.
  
  When markets turn bad and corporate frauds are more easily exposed, private equity firms like Blackstone and Carlyle seek additional channels to verify their investment portfolio or deal targets, Legg noted. - Reuters
  

Bank Of England Cut Rates Again!

And the cuts continues: Bank of England Cuts Rates to Record Low of 1.5%

• The Bank of England cut interest rates by half a percentage point on Thursday to a record low of 1.5 percent as it battles to keep Britain from falling into a deep slump, and experts say borrowing costs will fall again next month.
  
  British interest rates have now fallen by 3.5 percentage points since October as policymakers caught on the hop by the severity of the downturn pull out all the stops to revive an economy facing its first recession since 1992.
  
  Rates in Britain never fell below 2 percent even during the Great Depression of the 1930s, underlining the scale of the current crisis hurting economies all around the world. In the United States, rates now range between 0 and 0.25 percent.
  
  Economists said the BoE would cut again next month and interest rates could even fall below 1 percent, perhaps alongside a signal they would stay very low for a very long period of time.
  
  "They are still in cutting mode but have taken their foot off the gas this month," said Alan Clarke, UK economist at BNP Paribas.
  
  The pound, down 15 percent against the euro since the BoE started its aggressive interest rate campaign in October, rose after the decision as many in the market had been pricing in a bigger move after the last month's 1 point reduction.
  
  Short sterling interest rate futures also turned negative as markets priced in less aggressive monetary easing ahead.
  
  The BoE itself gave little indication on what it would do next, besides saying that while the fall in sterling, and recent tax and interest rate cuts would boost activity this year, there was still a risk inflation would fall below its target unless rates came down from 2 percent.

The Delisting Of Kosmo Technology

Caught this news clip on the Edge Daily yesterday: 07-01-2009: Bursa Securities starts delisting procedures against Kosmo

• KUALA LUMPUR: Bursa Malaysia Securities Bhd has started delisting procedures against Kosmo Technology Industrial Bhd, an amended practice note 17/2005 company, whose securities will be suspended from trading from Jan 12.
  
  Bursa Securities said Kosmo had failed to submit its regularisation plan to the Securities Commission and other relevant authorities for approval within the stipulated date of Jan 5, 2009. It has served Kosmo to make representations to Bursa Securities as to why its securities should not be de-listed.

Kosmo is now trading at 0.05/0.01!!!

Now I have posted on Kosmo Technology before last year.

Kosmo Technology Shocking Deviation Of Accounts, Kosmo Technology Balance Sheet

Yes, I fully understand and agree that Bursa Malaysia should delist Kosmo Technology however as stated before in the posting Kosmo Technology Shocking Deviation Of Accounts

• This morning, I caught the following news clip, Kosmo: We made a loss in 2007
  KOSMO Technology Industrial Bhd has revised its report card, saying it now made a net loss of RM141.71 million in the year ended December 31 2007. In February, Kosmo announced an unaudited net profit of RM1.4 million on RM38.42 million turnover for the recent year. Audited group turnover is at RM44.18 million, Kosmo told Bursa Malaysia yesterday. The company also said its annual report 2007 will be delayed.

Truly unbelievable!

From a profit of 1.4 million to a net loss of rm141.71 million!

• Totally shambolic!
  
  Given the truly incredible massive capital destruction, perhaps the SC should investigate and find out what on earth is happening here and why is there such a massive deviation in their accounts!
  
  Another truly sad day for Bursa Malaysia.

So what exactly happened in Kosmo?

How and why could the company could go from announcing a profit of 1.4 million to announcing a net loss of rm141.71 million????!!!!

Why such massive deviation?

And on the massive capital destruction of capital? Have a look. This is how Kosmo performed since listing!!!!

More From Satyam Scandal

Posted this morning: Scandal Breaks Out At Satyam!

On YahooFinance. Satyam Chairman: We're Just a Gigantic Fraud, Too

The following passage...

• Raju also said Satyam's balance sheet as of Sept. 30 had a non-existent cash balance of 50.4 billion rupees; nonexistent accrued interest of 3.76 billion rupees; an understated liability of 12.3 billion rupees; and an overstated debtor position of 4.9 billion rupees compared with 26.51 billion rupees reflected in its books.
  
  "This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in the second quarter alone," said the executive.

Hmmm...

1. had a non-existent cash balance of 50.4 billion rupees;

2. nonexistent accrued interest of 3.76 billion rupees;

3. an understated liability of 12.3 billion rupees;

4. and an overstated debtor position of 4.9 billion rupees compared with 26.51 billion rupees reflected in its books.

USD/JPY Chart Versus KLSE

Here's an interesting chart...

Scandal Breaks Out At Satyam!

Posted on The Times Of India: Satyam India's own Enron scandal: Analysts

• NEW DELHI: With Satyam Computer's founder-chairman Ramalinga Raju today disclosing financial bungling worth thousands of crores at the country's fourth largest IT firm, analysts today termed the entire episode as "India's own Enron scandal".
  
  They also termed Raju as India's Bernard Madoff, who has been charged in the US for fraud worth billions of dollars through a 'Ponzi' scheme, where money is taken from new investors to pass it on as returns for the older investors.
  
  Admitting that Satyam's financials were being inflated over the past years, Raju disclosed irregularities to the tune of about Rs 8,000 crore, in its balance sheet and financial results, and said he was ready for the laws of the land and to face the consequences.
  
  "We have witnessed everything bad but not as bad a scam like this. It has become India's own Enron till date," Ashika Stock Brokers' Research Head Paras Bothra said.
  
  "Raju has relieved the burden on his conscience by bringing to light one of the biggest-ever frauds in Indian corporate history," analysts at another brokerage house Angel Broking said while terming the episode as India's Enron.
  
  Before going belly-up in late 2001, Enron was one of the world's leading energy company, with over 20,000 employees, and had claimed over 100 billion dollar of revenue in 2000.
  
  Enron was termed as "America's Most Innovative Company" for six consecutive years, before it came to the light in end of 2001 that the company's reported financial condition was sustained mainly by institutionalized, systematic and creatively planned accounting fraud, making Enron a symbol of willful corporate fraud and corruption.
  
  Satyam, which has close to 53,000 employees and is the country's fourth biggest IT firm, has also won various innovation accolades and awards for its corporate governance.
  
  Hinting that the size of the financial irregularities could be much more, the analysts said that the figure of about Rs 8,000 crore has been disclosed by the company chairman himself and there could be more in store.
  
  "May be it is just the beginning, something more could just crop up as investigations unfold. Investor confidence has been shattered and a fraud of such magnitude has shaken the confidence of institutional investors, who would have relied on the books of the company," Bothra added.
  
  Angel Broking said that the fact that India's fourth largest IT firm has been involved in a "fraud of mammoth proportions" is likely to have repercussions in terms of global perception of Indian companies and also the local and global investors' confidence in the Indian stock market.
  
  Consultancy and auditing major KPMG's Chief Operating Officer in India Richard Rekhy said that it is a fraud that had been perpetuated over the years, where the top management was involved and it was not possible that other board members, internal auditors were not in the know.
  
  Grant Thornton' Harish H V said it was unlikely that the management was unaware of the whole situation, and the role of independent directors was questionable.
  
  Calling for an external investigation for swift and expeditious action against the loss of confidence, Grant Thornton also said that the regulators "need to act swiftly and ensure that there is no knee-jerk reaction" regarding the image of Indian companies abroad.
  
  Disclosing various irregularities in its books, Raju said that Satyam's balance sheet carried inflated cash-and-back balance of a massive Rs 5,040 crore, as on September 30.
  
  Besides, there was a non-existent accrued interest of Rs 376 crore, liabilities were under-stated to the extent of Rs 1,230 crore on account of funds arranged by Raju by pledging all promoter shares and debtors' position of Rs 490 crore was overstated.
  
  Revenue and operating profits were also overstated in its September quarter, resulting in inflated cash-and-bank balances of Rs 588 crore.
  

And on Reuters: Accounting scandal at Satyam could be India's Enron

• Accounting scandal at Satyam could be India's Enron
  Wed Jan 7, 2009 1:32pm EST
  By Sumeet Chatterjee
  
  BANGALORE (Reuters) - The head of Indian outsourcing company Satyam Computer Services resigned on Wednesday, disclosing that profits had been falsely inflated for years and sending its shares plunging nearly 80 percent.
  
  India's biggest corporate scandal in memory threatens future foreign investment flows into Asia's third-largest economy and casts a cloud over growth in its once-booming outsourcing sector.
  
  The news sent Indian equity markets into a tailspin, with Bombay's main benchmark index tumbling 7.3 percent and the Indian rupee fell.
  
  The New York Stock Exchange halted trading in Satyam's shares indefinitely, saying it wanted to review the news.
  
  Ramalinga Raju, founder and chairman of India's fourth-largest software services exporter, said in a statement that Satyam's profits had been massively inflated over recent years. He added that no other board member was aware of the financial irregularities at the Satyam, which in Sanskrit means "truth."
  
  "If a company's chairman himself says they built fictitious assets, who do you believe here? This has put a question mark on the entire corporate governance system in India," said R.K. Gupta, managing director at Taurus Asset Management in New Delhi.
  
  Raju, who founded Satyam as a family business with his brother and brother-in-law more than two decades ago, said about $1 billion or 94 percent of the cash on the company's books was fictitious.
  
  The startling admission comes as investors across the globe pay more attention to oversight following last month's arrest of Bernard Madoff over charges he swindled clients out of billions of dollars.
  
  "In a bull market, people forgot about it (corporate governance)," said Singapore-based Ashish Goyal, chief investment officer at Prudential Asset Management. "In a bear market chickens are coming home to roost, so it gets highlighted at a time like this."
  
  "RIDING A TIGER"
  
  Satyam's auditor PricewaterhouseCoopers declined comment, saying it was investigating the matter. U.S. Securities and Exchange Commission spokesman John Nester had no comment on the matter.
  
  The New York Stock Exchange said in a statement that it was "currently evaluating the news relating to Satyam and will continue to closely monitor further developments."
  
  Raju, 54, came under close scrutiny last month after the company's botched attempt to buy two construction companies partly owned by its founders, which Raju said on Wednesday was a final attempt to resolve the problem of the fictitious assets.
  
  "It was like riding a tiger, not knowing how to get off without being eaten," Raju, a management graduate from Ohio University, said in his letter, adding he was prepared to face up to the legal consequences.
  
  Satyam said its managing director and co-founder B. Rama Raju, Raju's brother, had also resigned. The company, which went public in 1991, did not give any reason for the resignation.
  
  The company's difficulties multiplied when the World Bank, a major customer, barred Satyam from new business, citing "improper benefits" given to Bank officials.
  
  Satyam rose to prominence in the late 1990s when Raju was among the first to spot outsourcing opportunities in the year 2000 rollover problem, which saw the coming of age of the software outsourcing industry.
  
  Just three months ago, Satyam received a Golden Peacock award from a group of Indian directors for excellence in corporate governance.
  
  By close of trade, Satyam's share value slumped to about $550 million from around $7 billion as recently as last June.
  
  New York-listed Satyam specializes in business software and back-office services for clients such as General Electric and Nestle.
  
  SWAT TEAM
  
  Satyam said in a letter to employees that it had named Ram Mynampati as interim CEO, and named a "SWAT team" of senior managers to help him run the company.
  
  Analysts said that was unlikely to satisfy investors.
  
  "I think there is no future for this stock. This case for India is similar to what happened to Enron in the U.S.," said Jigar Shah, senior vice-president at Kim Eng Securities.
  
  "It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected."
  
  The scandal set off a wave of condemnation from Indian market regulators and government officials, and prompted banker Merrill Lynch to terminate its engagement with Satyam.
  
  "It's going to impact the Indian outsourcing industry. Customers are going to be concerned about offshoring firms in India," said Sudin Apte, country head of Forrester in the western city of Pune.
  
  Satyam said it would go ahead with a planned board meeting on Saturday to consider a share buyback following a rash of broker downgrades even after its acquisitions were called off last month.
  

Comments:

• Raju, who founded Satyam as a family business with his brother and brother-in-law more than two decades ago, said about $1 billion or 94 percent of the cash on the company's books was fictitious.

Holy COW!!! 94% factitious????

• The 54-year-old Satyam chairman came under close scrutiny last month after the company's botched attempt to buy two construction firms partly owned by its founders, which Raju said on Wednesday was a final attempt to resolve the problem of the fictitious assets.

Partly owned by its founders? Again it shows why RPT or Related Party Transactions stinks!

• Satyam said its managing director and co-founder B. Rama Raju, Raju's brother, had also resigned. It did not give any reason for the resignation.

Surely they knew!!!

• The company's difficulties multiplied when the World Bank, a major customer, barred Satyam from new business, citing "improper benefits" given to Bank officials.

Improper benefits given to Bank Officials???? Holy COW!

• Just three months ago, Satyam received a Golden Peacock award from a group of Indian directors for excellence in corporate governance.

Holy Cow!!!!!!!!! Excellence in corporate governance??? I wonder if "improper benefits" were involved!!!!

• Satyam said it would go ahead with a planned board meeting on Saturday to consider a share buyback following a rash of broker downgrades even after its acquisitions were called off last month.

Consider a share buyback????

OMIGOD!!!!!!

Totally unbelievable!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Early Corporate Earnings Notes For 2009

Published on Bloomberg News, Global Corporate Profits to Drop in ’09; More Bankruptcies Loom

• By Katie Hoffmann and Joseph Galante
  
  Jan. 5 (Bloomberg) -- Corporate earnings will continue to slump into the first half of 2009 amid the first simultaneous recessions in the U.S., Japan and Europe since World War II.
  
  Earnings at Standard & Poor’s 500 companies will probably fall in the first half, marking eight straight quarters of declines. In Europe and Asia, the outlook may be even worse as the recession curbs demand for retail goods and exports.
  
  “It’s going to be a miserable ride,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $30 billion. Earnings probably won’t rebound until the end of 2009, he said. “The market recovers, then the economy recovers, then finally the earnings recover.”
  
  Companies are battling falling consumer demand and dwindling cash flows after banks tightened lending to cope with billions of dollars of real-estate losses. The U.S. Federal Reserve has cut interest rates to as low as zero percent, while governments worldwide have taken stakes in banks and companies to prevent a collapse of the global financial system.
  
  “We hit the peak in earnings in 2007, and in 2009 we’re going to see continued deterioration,” said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Ltd. in New York. Analysts’ earnings estimates are “still way too optimistic.”
  
  In the U.S., profit at Standard & Poor’s 500 companies will fall 11 percent in the first quarter, followed by a 6.2 percent drop in the following three months, according to data compiled by Bloomberg. Earnings should improve in the second half, driven by a rebounding financial industry, the data show.
  
  Europe, Asia
  
  While profits will rise 4.3 percent for the full year in the U.S., earnings in Europe are projected to decline for all of 2009 and analysts predict worsening reports out of Asia because the recession hasn’t fully hit there yet.
  
  The energy industry will lead U.S. declines, with earnings estimated to drop 29 percent in 2009. Profit at Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, will probably fall after the recession sapped fuel demand, spurring a 78 percent drop in crude-oil prices from July’s record.
  
  At Irving, Texas-based Exxon Mobil, the world’s biggest publicly traded company, earnings will probably tumble 39 percent to $28.2 billion, the first decline since 2002, according to a Bloomberg survey of analysts.
  
  “We expect industry earnings to be down sharply, especially in exploration and production,” said Gene Pisasale, who helps manage $13 billion at PNC Capital Advisors in Baltimore.
  
  Retailers Close
  
  Earnings at U.S. retailers will fall 20 percent this year, according to analysts’ estimates. The International Council of Shopping Centers in New York predicts 73,000 U.S. stores may shut in the first half of 2009 after what may have been the worst holiday-shopping season in 40 years. That’s after about 148,000 stores closed last year, the most since the 2001 recession, according to the trade group.
  
  “You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains -- either multi- regionally or nationally -- go out,” said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York.
  
  AnnTaylor Stores Corp., Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations as consumers tighten budgets. More than a dozen U.S. retailers filed for bankruptcy in 2008, including Circuit City Stores Inc., Linens ‘n Things Inc. and Sharper Image Corp.
  
  Wal-Mart Stores Inc., the largest retailer, may report a 6 percent profit increase this year by offering lower prices to consumers seeking bargains, according to estimates.
  
  ‘Very Difficult’
  
  JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. banks, will probably post higher profits this year compared with 2008, when finance companies wrote down more than $720 billion of losses.
  
  “For the large financials, it’s going to be a very difficult year,” said David Burg, a Purchase, New York-based analyst at Alpine Woods Capital Investors LLC, which manages about $6.5 billion, including JPMorgan shares. “The story for 2009 continues to be radical transformation -- companies fundamentally changing their business model.”
  
  Goldman Sachs and Morgan Stanley, which were the two biggest U.S. securities firms before converting into banks, will suffer from a 15 percent decline in mergers and acquisitions and slowing underwriting fees, Kenneth Worthington, an analyst at JPMorgan in New York, said last month in a note.
  Autos, Technology
  
  U.S. automakers will show some improvements in 2009 after sales plummeted last year, forcing the government to lend $13.4 billion to General Motors Corp. and Chrysler LLC to keep them out of bankruptcy.
  
  GM’s loss may narrow to $12.8 billion from $19.6 billion last year, according to analysts’ estimates. Ford Motor Co. may report a loss of $6.38 billion, compared with $9.2 billion last year, the estimates show.
  
  Technology will be one of the best-performing sectors in the second half as customers start to increase budgets, said Pete Sorrentino, senior portfolio manager for Cincinnati-based Huntington Asset Management, which oversees $16.5 billion. Earnings at software and services companies may rise 8.1 percent in 2009, while profits at hardware makers may slip 6.7 percent, according to analysts’ estimates.
  
  Apple, Google
  
  Consumers may continue to curb spending in the first half, dragging down sales at Apple Inc., maker of the iPhone and Macintosh computers, David Bailey, an analyst at Goldman Sachs in New York, said last month. Google Inc., owner of the most popular search engine, will probably post a 14 percent increase in profit in 2009 as it clamps down on spending, according to the estimates.
  
  Health care will be one bright spot, as sick people still need medical treatment, said Les Funtleyder, an analyst with Miller Tabak & Co. in New York. Profit at Standard & Poor’s 500 drug companies and medical equipment makers, such as Johnson & Johnson and Pfizer Inc., may increase 6.8 percent in 2009.
  
  “Health care tends to be recession-resistant,” Funtleyder said. “Some people may use fewer drugs, so that’s obviously a bad thing, but it’s less cyclical than other industries.”
  
  In Europe, profits at Dow Jones Stoxx 600 Index companies may fall less than 1 percent this year, compared with a 17 percent decline in 2008. Oil and gas companies face the heaviest declines, according to analysts’ estimates.
  
  Wild Card
  
  “The biggest near-term risk is how tough it’s getting overseas,” said McCain at Key Private Bank. “That’s the wild card.”
  
  Earnings at European oil companies may drop 21 percent in 2009, compared with a 4.7 percent gain last year, according to estimates. Profit at Royal Dutch Shell Plc, Europe’s largest oil company, may drop 27 percent. The company postponed projects in Canada and Australia as demand for oil declined.
  
  European retailers may post a 12 percent drop in earnings this year. Discounts of 70 percent or more during the holiday shopping season by U.K. stores hurt profit margins and may lead to a raft of bankruptcies, said Nick Hood at Begbies Traynor.
  
  Nokia Oyj, the largest mobile-phone maker, said last month the global handset market may contract this year for the first time since 2001. Earnings at Espoo, Finland-based Nokia could decline 14 percent in 2009, according to analysts’ estimates.
  
  Asia Recession
  
  Half of Asia will probably be in recession this year as a $700 billion drop in export earnings causes economies in Japan, Hong Kong, Singapore, South Korea and Taiwan to shrink, according to Macquarie Group Ltd.
  
  Japanese corporate earnings may extend their slump after the yen rose against all major currencies in 2008 and eroded the value of exports. Credit Suisse Group AG estimates earnings will be weakest in the first half at carmakers, machinery producers and technology companies.
  
  Japanese automakers are slashing output, jobs and profit forecasts as the global recession deters consumers from buying new cars and sport-utility vehicles. Toyota Motor Corp., Japan’s biggest automaker, last month predicted its first operating loss in 71 years for this fiscal year because of the slump and a stronger yen.
  
  Vehicle demand from emerging markets, where automakers had counted on sales shoring up collapsing demand in the U.S., Europe and Japan, is also likely to decline as fallout from the credit crunch and economic slump spread, said Song Sang Hoon, a Seoul- based analyst at Kyobo Securities Co.
  
  No Immunity
  
  “No one will be immune from this downturn. It’s time to see who’s losing least, not who’s winning more,” he said.
  
  Among technology companies, Tokyo-based Sony Corp. will begin eliminating 16,000 jobs as the slump undermines sales of Bravia televisions and Cyber-shot digital cameras. Panasonic Corp. is projecting profit in the year ending March 31 will be 90 percent lower than previously anticipated.
  
  Asian banks will grapple with falling earnings and rising defaults on loans this year as economies from China to Australia slow, prompting central banks to slash interest rates, said Tim Rocks, an Asian equities strategist at Macquarie in Hong Kong.
  
  Lenders in Japan, Australia, Singapore and South Korea raised money in the final quarter of 2008 after they escaped most of the initial writedowns and credit losses that forced U.S. and European rivals into government takeovers.
  
  “This quarter and the first quarter ‘09 are just going to be really ugly quarters,’’ said Frederic Dickson, who helps manage about $19 billion at D.A. Davidson & Co. in Lake Oswego, Oregon. ‘‘It’s just going to take a long time to get confidence restored.’’